Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend the MIAX PEARL Fee Schedule, 5296-5300 [2021-00949]

Download as PDF 5296 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices improve its competitive standing relative to other exchanges. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 23 and subparagraph (f)(6) of Rule 19b–4 thereunder.24 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– ISE–2020–43 on the subject line. khammond on DSKJM1Z7X2PROD with NOTICES Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549–1090. 23 15 U.S.C. 78s(b)(3)(A)(iii). 24 17 CFR 240.19b-4(f)(6). In addition, Rule 19b4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. VerDate Sep<11>2014 21:56 Jan 17, 2021 Jkt 253001 All submissions should refer to File Number SR–ISE–2020–43. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–ISE–2020–43 and should be submitted on or before February 9, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–00948 Filed 1–15–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–90906; File No. SR– PEARL–2020–38] Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend the MIAX PEARL Fee Schedule January 12, 2021. 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 December 25 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00167 Fmt 4703 Sfmt 4703 31, 2020, MIAX PEARL, LLC (‘‘MIAX PEARL’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to amend the MIAX PEARL Fee Schedule (the ‘‘Fee Schedule’’) for the Exchange’s options market. 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 concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees set forth in Section (1)(a) of the Fee Schedule that apply to the MIAX PEARL Market Maker 3 Origin, to: (i) Modify the volume threshold for the alternative Volume Criteria in Tier 2; and (ii) add a new, alternative Volume Criteria to Tier 3. Background The Exchange currently assesses transaction rebates and fees to all market participants which are based upon the total monthly volume 3 ‘‘Market Maker’’ means a Member registered with the Exchange for the purpose of making markets in options contracts traded on the Exchange and that is vested with the rights and responsibilities specified in Chapter VI of Exchange Rules. See the Definitions Section of the Fee Schedule. E:\FR\FM\19JAN1.SGM 19JAN1 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES executed by the Member 4 on MIAX PEARL in the relevant, respective origin type (not including Excluded Contracts) 5 (as the numerator) expressed as a percentage of (divided by) TCV 6 (as the denominator). In addition, the per contract transaction rebates and fees are applied retroactively to all eligible volume for that origin type once the respective threshold tier (‘‘Tier’’) has been reached by the Member. The Exchange aggregates the volume of Members and their Affiliates.7 Members that place resting liquidity, i.e., orders resting on 4 ‘‘Member’’ means an individual or organization that is registered with the Exchange pursuant to Chapter II of the Exchange Rules for purposes of trading on the Exchange as an ‘‘Electronic Exchange Member’’ or ‘‘Market Maker.’’ Members are deemed ‘‘members’’ under the Exchange Act. See the Definitions Section of the Fee Schedule and Exchange Rule 100. 5 ‘‘Excluded Contracts’’ means any contracts routed to an away market for execution. See the Definitions Section of the Fee Schedule. 6 ‘‘TCV’’ means total consolidated volume calculated as the total national volume in those classes listed on MIAX PEARL for the month for which the fees apply, excluding consolidated volume executed during the period time in which the Exchange experiences an ‘‘Exchange System Disruption’’ (solely in the option classes of the affected Matching Engine (as defined below)). The term Exchange System Disruption, which is defined in the Definitions section of the Fee Schedule, means an outage of a Matching Engine or collective Matching Engines for a period of two consecutive hours or more, during trading hours. The term Matching Engine, which is also defined in the Definitions section of the Fee Schedule, is a part of the MIAX PEARL electronic system that processes options orders and trades on a symbol-by-symbol basis. Some Matching Engines will process option classes with multiple root symbols, and other Matching Engines may be dedicated to one single option root symbol (for example, options on SPY may be processed by one single Matching Engine that is dedicated only to SPY). A particular root symbol may only be assigned to a single designated Matching Engine. A particular root symbol may not be assigned to multiple Matching Engines. The Exchange believes that it is reasonable and appropriate to select two consecutive hours as the amount of time necessary to constitute an Exchange System Disruption, as two hours equates to approximately 1.4% of available trading time per month. The Exchange notes that the term ‘‘Exchange System Disruption’’ and its meaning have no applicability outside of the Fee Schedule, as it is used solely for purposes of calculating volume for the threshold tiers in the Fee Schedule. See the Definitions Section of the Fee Schedule. 7 ‘‘Affiliate’’ means (i) an affiliate of a Member of at least 75% common ownership between the firms as reflected on each firm’s Form BD, Schedule A, or (ii) the Appointed Market Maker of an Appointed EEM (or, conversely, the Appointed EEM of an Appointed Market Maker). An ‘‘Appointed Market Maker’’ is a MIAX PEARL Market Maker (who does not otherwise have a corporate affiliation based upon common ownership with an EEM) that has been appointed by an EEM and an ‘‘Appointed EEM’’ is an EEM (who does not otherwise have a corporate affiliation based upon common ownership with a MIAX PEARL Market Maker) that has been appointed by a MIAX PEARL Market Maker, pursuant to the process described in the Fee Schedule. See the Definitions Section of the Fee Schedule. VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 the book of the MIAX PEARL System,8 are paid the specified ‘‘maker’’ rebate (each a ‘‘Maker’’), and Members that execute against resting liquidity are assessed the specified ‘‘taker’’ fee (each a ‘‘Taker’’). For opening transactions and ABBO 9 uncrossing transactions, per contract transaction rebates and fees are waived for all market participants. Finally, Members are assessed lower transaction fees and receive lower rebates for order executions in standard option classes in the Penny Interval Program 10 (‘‘Penny Classes’’) than for order executions in standard option classes which are not in the Penny Interval Program (‘‘Non-Penny Classes’’), where Members are assessed higher transaction fees and receive higher rebates. Alternative Volume Criteria Threshold Change in Tier 2 The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees set forth in Section (1)(a) of the Fee Schedule that apply to the MIAX PEARL Market Maker Origin, to modify the volume threshold for the alternative Volume Criteria in Tier 2. The MIAX PEARL Market Maker Origin set forth in Section 1)a) of the Fee Schedule currently provides an alternative Volume Criteria in Tier 2, which is based upon the total monthly volume executed by a MIAX PEARL Market Maker collectively in SPY/QQQ/IWM options on MIAX PEARL, expressed as a percentage of total consolidated national volume in SPY/QQQ/IWM options.11 Pursuant to this alternative Volume Criteria, a Market Maker is able to reach the Tier 2 threshold if the Market Maker’s total executed monthly volume, not including Excluded Contracts, in SPY/QQQ/IWM options on MIAX PEARL is above 0.45% of total consolidated national monthly volume in SPY/QQQ/IWM options. For this calculation, volume that is from resting liquidity (Maker) and taking liquidity (Taker) in SPY/QQQ/IWM options is counted towards the alternative Volume Criteria, and the 0.45% threshold does not have to be reached individually in 8 The term ‘‘System’’ means the automated trading system used by the Exchange for the trading of securities. See Exchange Rule 100. 9 ‘‘ABBO’’ means the best bid(s) or offer(s) disseminated by other Eligible Exchanges (defined in Exchange Rule 1400(g) and calculated by the Exchange based on market information received by the Exchange from OPRA. See the Definitions Section of the Fee Schedule and Exchange Rule 100. 10 See Securities Exchange Act Release No. 88992 (June 2, 2020), 85 FR 35142 (June 8, 2020) (SR– PEARL–2020–06). 11 See Securities Exchange Act Release No. 84592 (November 14, 2018), 83 FR 58646 (November 20, 2018) (SR–PEARL–2018–23). PO 00000 Frm 00168 Fmt 4703 Sfmt 4703 5297 each of the three symbols. A Market Maker is able to qualify for Tier 2 rebates and fees which will then be applicable to all volume executed by the MIAX PEARL Market Maker on MIAX PEARL. The two Volume Criteria available for Tier 2 is based upon either: (a) The total monthly volume executed by the Market Maker in all options classes on MIAX PEARL, not including Excluded Contracts, (as the numerator), expressed as a percentage of (divided by) TCV (as the denominator); or (b) the total monthly volume executed by the MIAX PEARL Market Maker collectively in SPY/QQQ/IWM options on MIAX PEARL, not including Excluded Contracts, (as the numerator), expressed as a percentage of (divided by) SPY/ QQQ/IWM TCV 12 (as the denominator). Once either Volume Criteria threshold in Tier 2 is reached by the Market Maker, the Tier 2 per contract rebates and fees apply to all volume in all options classes executed by that MIAX PEARL Market Maker on MIAX PEARL. The Exchange proposes to modify the threshold for the alternative Volume Criteria in Tier 2 from 0.45% to 0.75% of total consolidated national monthly volume in SPY/QQQ/IWM options. With the proposed change, a Market Maker will be able to reach the alternative Volume Criteria in Tier 2 if the Market Maker’s total executed monthly volume, not including Excluded Contracts, in SPY/QQQ/IWM options on MIAX PEARL is above 0.75% of total consolidated national monthly volume in SPY/QQQ/IWM options. The Exchange is not modifying the calculation method for a Market Maker to reach the alternative Volume Criteria in Tier 2, only the threshold percentage. The Exchange proposes to make the corresponding change to the volume threshold percentage described in the explanatory paragraph for the alternative Volume Criteria for Tier 2 that is below the tables in Section 1)a) of the Fee Schedule. The purpose of this proposed change is for business and competitive reasons. In order to attract order flow, the Exchange initially set its volume threshold for the alternative Volume Criteria in Tier 2 at a meaningful low level. The Exchange now believes that it is appropriate to adjust this volume threshold so that it is more in line with 12 ‘‘SPY/QQQ/IWM TCV’’ means total consolidated volume in SPY, QQQ, and IWM calculated as the total national volume in SPY, QQQ, and IWM for the month for which the fees apply, excluding consolidated volume executed during the period of time in which the Exchange experiences an Exchange System Disruption (solely in SPY, QQQ, or IWM options). See the Definitions Section of the Fee Schedule. E:\FR\FM\19JAN1.SGM 19JAN1 5298 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES the volume threshold that Market Makers currently achieve in SPY/QQQ/ IWM options on MIAX PEARL. The Exchange believes that the proposed volume threshold will still remain highly competitive such that the threshold should enable the Exchange to continue to attract order flow in SPY/ QQQ/IWM options and maintain market share. The Exchange cannot predict with certainty how many Market Makers would achieve the alternative Volume Criteria in Tier 2 with the increased threshold percentage, but the Exchange anticipates that each Market Maker that is currently in Tier 2 with that alternative method will likely continue to reach that Tier. Alternative Volume Criteria for Tier 3 The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees set forth in Section (1)(a) of the Fee Schedule that apply to the MIAX PEARL Market Maker Origin, to add a new, alternative Volume Criteria to Tier 3, based upon the total monthly volume executed in SPY options on MIAX PEARL by a MIAX PEARL Market Maker when adding liquidity. Pursuant to this alternative Volume Criteria, Market Makers will qualify for: (i) Maker rebates of ($0.44) in SPY, QQQ and IWM options for their Market Maker Origin when trading against Origins not Priority Customer, and (ii) Maker rebates of ($0.42) in SPY, QQQ and IWM options for their Market Maker Origin when trading against Priority Customer Origins, if the Market Maker executes at least 1.10% in SPY options when adding liquidity. The Exchange proposes that, in Tier 3 for MIAX PEARL Market Makers, the alternative Volume Criteria (above 1.10% in SPY when Adding Liquidity) will be calculated based on the total monthly volume that added liquidity executed by the Market Maker solely in SPY options on MIAX PEARL, not including Excluded Contracts, (as the numerator) expressed as a percentage of (divided by) SPY TCV 13 (as the denominator). The Exchange notes that Market Makers that achieve the standard Tier 3 volume percentage but do not qualify for the proposed alternative Volume Criteria in that Tier, will receive the Tier 3 rates in the Market Maker Origin table in Penny Classes and Non-Penny Classes. Members will receive the highest tier 13 ‘‘SPY TCV’’ means total consolidated volume in SPY calculated as the total national volume in SPY for the month for which the fees apply, excluding consolidated volume executed during the period of time in which the Exchange experiences an Exchange System Disruption (solely in SPY options). See the Definitions Section of the Fee Schedule. VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 based on the thresholds achieved. Other Penny classes and Non-Penny classes will receive the Tier 3 rates in the Market Maker Origin table. The Exchange proposes to designate the Tier 3 alternative Volume Criteria with the new symbol ‘‘✦’’ in Tier 3 of the Market Maker Origin table in Section (1)(a) of the Fee Schedule, with an explanatory paragraph listed below the tables in Section (1)(a) of the Fee Schedule. The purpose of this proposed change is for business and competitive reasons. The Exchange cannot predict with certainty how many Market Makers would achieve the proposed Tier 3 alternative Volume Criteria, but anticipates that approximately three Market Makers are within reasonable proximity to potentially achieve the higher rebates in SPY/QQQ/IWM options based upon the total monthly volume executed in SPY options on MIAX PEARL by the current MIAX PEARL Market Makers. The proposed changes are scheduled to become operative January 4, 2021. 2. Statutory Basis The Exchange believes that its proposal to amend its Fee Schedule is consistent with Section 6(b) of the Act 14 in general, and furthers the objectives of Section 6(b)(4) of the Act,15 in that it is an equitable allocation of reasonable dues, fees and other charges among Exchange members and issuers and other persons using its facilities, and 6(b)(5) of the Act,16 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. The Exchange believes its proposal to modify the volume threshold for the alternative Volume Criteria in Tier 2 and add a new, alternative Volume Criteria to Tier 3 provides for the equitable allocation of reasonable dues and fees and is not unfairly discriminatory for the following reasons. The Exchange operates in a highly competitive 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, 14 15 U.S.C. 78f(b). U.S.C. 78f(b)(4). 16 15 U.S.C. 78f(b)(1) and (b)(5). 15 15 PO 00000 Frm 00169 Fmt 4703 Sfmt 4703 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.’’ 17 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 15% of the market share of executed volume of multiplylisted equity and ETF options trades as of December 24, 2020, for the month of December 2020.18 Therefore, no exchange possesses significant pricing power in the execution of multiplylisted equity and ETF options order flow. More specifically, as of December 30, 2020, the Exchange had an approximately 3.10% market share of executed volume of multiply-listed equity and ETF options for the month of December 2020.19 The Exchange believes that the evershifting market shares among the exchanges from month to month demonstrates that market participants can shift order flow, or discontinue or reduce use of certain categories of products, in response to transaction and/or non-transaction fee changes. For example, on February 28, 2019, the Exchange 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).20 The Exchange experienced a decrease in total market share between the months of February and March of 2019, after the fees were in effect. Accordingly, the Exchange believes that the March 1, 2019 fee change may have contributed to the decrease in the Exchange’s market share and, as such, the Exchange believes competitive forces constrain options exchange transaction fees and market participants can shift order flow based on fee changes instituted by the exchanges. The Exchange believes its proposal to modify the volume threshold for the alternative Volume Criteria in Tier 2 17 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). 18 See https://www.cboe.com/us/options/market_ share/. 19 See id. 20 See Securities Exchange Act Release No. 85304 (March 13, 2019), 84 FR 10144 (March 19, 2019) (SR–PEARL–2019–07). E:\FR\FM\19JAN1.SGM 19JAN1 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES and add a new, alternative Volume Criteria to Tier 3 is reasonable, equitably allocated and not unfairly discriminatory because these changes are for business and competitive reasons. In order to attract order flow, the Exchange initially set its volume threshold for the alternative Volume Criteria in Tier 2 at a meaningful low level. The Exchange now believes that it is appropriate to adjust this volume threshold so that it is more in line with the volume threshold that Market Makers currently achieve in SPY/QQQ/ IWM options on MIAX PEARL. The Exchange believes that the proposed volume threshold will still remain highly competitive such that the threshold should enable the Exchange to continue to attract order flow in SPY/ QQQ/IWM options and maintain market share. The Exchange believes its proposal to establish the alternative Volume Criteria for Tier 3 is reasonable, equitable, and not unfairly discriminatory, as it is a form of pricing already adopted by the Exchange 21 and a form of pricing based upon trading activity in a select group of symbols, which is a common practice on many U.S. options exchanges as a means to incentivize order flow to be sent to an exchange for execution in actively traded options classes. The Exchange’s affiliate, Miami International Securities Exchange, LLC (‘‘MIAX Options’’), offers differentiated pricing for transactions in options underlying certain select symbols.22 Other options exchanges’ fee schedules distinguish by symbol and specifically assess different fees and rebates for transactions in select symbols for the same market participants.23 The Exchange believes its proposal to offer an alternative Tier 3 Volume Criteria based upon the total monthly volume executed in SPY options on MIAX PEARL by a MIAX PEARL Market Maker when adding liquidity, will incentivize Market Makers to improve their posted liquidity to the benefit of the entire market, which will increase 21 See supra note 11. See generally, Section (1)(a) of the Fee Schedule for Market Maker Origin. 22 See MIAX Options Fee Schedule, Section (1)(a)(iii). 23 See Nasdaq ISE, LLC (‘‘ISE’’) Fee Schedule, Section 3, Regular Order Fees and Rebates. The ISE Fee Schedule provides for a ‘‘Market Maker Plus’’ program for Select and Non-Select Symbols, with tiered incentives for Market Makers. Further, the ISE Fee Schedule provides for a linked maker rebate for SPY, QQQ and IWM, in which the linked maker rebate applies to executions in SPY, QQQ, and IWM if the ISE Market Maker does not achieve the applicable tier in that symbol but achieves the tier (i.e., any of the Market Maker Plus Tiers 2–4) for any badge/suffix combination in the other linked symbol, in which case the higher tier achieved applies to both symbols. VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 order flow sent to the Exchange, benefiting all market participants through increased liquidity, tighter markets and order interaction. The Exchange also believes that its proposal is not unfairly discriminatory as all Market Makers can qualify for the alternative Volume Criteria in Tiers 2 and 3 by meeting the requirements that are designed to incentivize Market Makers to maintain quality markets. In addition, the Exchange continues to believe that it is not unfairly discriminatory to offer rebates pursuant to this proposal to only Market Makers because Market Makers add value through continuous quoting and are subject to additional requirements and obligations (such as quoting obligations) that other market participants are not. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule changes will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes its proposal will not impose any burden on intramarket competition because the Exchange believes that its proposal will not place any category of Exchange market participant at a competitive disadvantage. The proposal to modify the volume threshold for the alternative Volume Criteria in Tier 2 and add a new, alternative Volume Criteria to Tier 3, is intended to improve market quality. The Exchange believes that its proposal will encourage Market Makers to improve market quality by providing an additional incentive to Market Makers in SPY and QQQ/IWM options to send additional SPY and QQQ/IWM orders, which results in narrower bidask spreads and increased depth of liquidity. This in turn will attract additional order flow to the Exchange. Accordingly, the Exchange believes that the proposed changes will continue to attract order flow to the Exchange, thereby encouraging additional volume and liquidity to the benefit of all market participants. The Exchange believes its proposal will not impose any burden on intermarket competition because 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, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees to remain competitive with other options exchanges. Because competitors PO 00000 Frm 00170 Fmt 4703 Sfmt 4703 5299 are free to modify their own fees in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. The Exchange believes that the proposed rule changes reflect this competitive environment because they modify the Exchange’s fees in a manner that encourages market participants to continue to provide liquidity and to send order flow to the Exchange. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act,24 and Rule 19b–4(f)(2) 25 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– PEARL–2020–38 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. 24 15 25 17 E:\FR\FM\19JAN1.SGM U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). 19JAN1 5300 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Notices All submissions should refer to File Number SR–PEARL–2020–38. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–PEARL–2020–38 and should be submitted on or before February 9, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–00949 Filed 1–15–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 34171; 812–15157] Natixis ETF Trust II, et al. January 12, 2021. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of an application to amend a prior order for exemptive relief. khammond on DSKJM1Z7X2PROD with NOTICES AGENCY: Applicants request an order (‘‘Amended Order’’) SUMMARY OF APPLICATION: 26 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 19:19 Jan 17, 2021 Jkt 253001 that would amend a prior order to permit the Funds, as defined below, to use Creation Baskets (as defined below) that include instruments that are not included, or are included with different weightings, in the Fund’s proxy portfolio. APPLICANTS: Natixis Advisors, L.P. (‘‘Natixis’’), Natixis ETF Trust II (the ‘‘Trust’’) and NYSE Group, Inc. (‘‘NYSE’’). FILING DATES: The application was filed on August 31, 2020, and amended on November 16, 2020 and on December 8, 2020. HEARING OR NOTIFICATION OF HEARING: An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing by emailing the Commission’s Secretary at SecretarysOffice@sec.gov and serving Applicants with a copy of the request by email. Hearing requests should be received by the Commission by 5:30 p.m. on February 8, 2021 and should be accompanied by proof of service on the Applicants, in the form of an affidavit, or, for lawyers, a certificate of service. Pursuant to rule 0–5 under the Investment Company Act of 1940 (‘‘Act’’), hearing requests should state the nature of the writer’s interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by emailing to the Commission’s Secretary at Secretarys-Office@sec.gov. ADDRESSES: The Commission: Secretarys-Office@sec.gov. Applicants: peter.shea@klgates.com. FOR FURTHER INFORMATION CONTACT: Marc Mehrespand, Senior Counsel; Trace Rakestraw, Branch Chief, at (202) 551–6825 (Division of Investment Management, Chief Counsel’s Office). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission’s website by searching for the file number, or for an applicant using the Company name box, at https:// www.sec.gov/search/search.htm or by calling (202) 551–8090. I. Introduction 1. On December 10, 2019, the Commission issued an order (‘‘Prior Order’’) 1 under section 6(c) of the Act 1 See Natixis ETF Trust II, et al., Investment Company Act Release No. 33684 (Nov. 14, 2019) (notice) and Investment Company Act Release No. 33711 (Dec. 10, 2019) (order). Except as specifically noted in the application, all representations and PO 00000 Frm 00171 Fmt 4703 Sfmt 4703 for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c–1 under the Act, under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under section 12(d)(1)(J) of the Act for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the Act.2 The Prior Order permitted Applicants to introduce a novel type of actively-managed exchange-traded fund (‘‘ETF’’) that is not required to disclose its portfolio holdings on a daily basis (each, a ‘‘Fund’’). Rather, pursuant to the Prior Order, each Business Day 3 a Fund publishes a basket of securities and cash that, while different from the Fund’s portfolio, is designed to closely track its daily performance (the ‘‘Proxy Portfolio’’). 2. Pursuant to the Prior Order, a Fund sells and redeems its shares (‘‘Shares’’) only in Creation Units and generally on an in-kind basis. Purchasers are required to purchase Creation Units by making a deposit of Deposit Instruments and shareholders redeeming their Shares receive a transfer of Redemption Instruments.4 Under the Prior Order, the names and quantities of the instruments that constitute the Deposit Instruments and the Redemption Instruments for a Fund (collectively, the ‘‘Creation Basket’’) are the same as the Fund’s Proxy Portfolio, except to the extent purchases and redemptions are made entirely or in part on a cash basis. 3. Applicants now seek to amend the Prior Order to, in effect, give the Funds the same flexibility with respect to Creation Basket composition as afforded to ETFs relying on rule 6c–11.5 More conditions contained in the application previously submitted with the Commission (File No. 812– 14870), as amended and restated, and filed with the Commission on October 21, 2019 (the ‘‘Prior Application’’) remain applicable to the operation of the Funds and will apply to any Funds relying on the Amended Order. 2 The relief granted in the Prior Order under section 12(d)(1)(J) of the Act for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the 1940 Act (the ‘‘Section 12(d)(1) Relief’’), and relief under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act relating to the Section 12(d)(1) Relief, will expire one year from the effective date of rule 12d1–4. See Fund of Funds Arrangements, Investment Company Act Rel. No. 10871 (Oct. 7, 2020), at III. 3 All capitalized terms not otherwise defined in this notice have the meanings ascribed to them in the Prior Application. 4 Deposit Instruments and Redemption Instruments may include cash and/or securities. 5 The Funds are not be able to operate in reliance on rule 6c–11 because they do not disclose their portfolio holdings on a daily basis as required by the rule. See rule 6c–11(c)(1)(i) (requiring an ETF to disclose prominently on its website, publicly available and free of charge, the portfolio holdings that will form the basis for each calculation of NAV per share). E:\FR\FM\19JAN1.SGM 19JAN1

Agencies

[Federal Register Volume 86, Number 11 (Tuesday, January 19, 2021)]
[Notices]
[Pages 5296-5300]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00949]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90906; File No. SR-PEARL-2020-38]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change to Amend the MIAX 
PEARL Fee Schedule

January 12, 2021.
    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 December 31, 2020, MIAX PEARL, LLC (``MIAX PEARL'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX PEARL Fee 
Schedule (the ``Fee Schedule'') for the Exchange's options market.
    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
    The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees 
set forth in Section (1)(a) of the Fee Schedule that apply to the MIAX 
PEARL Market Maker \3\ Origin, to: (i) Modify the volume threshold for 
the alternative Volume Criteria in Tier 2; and (ii) add a new, 
alternative Volume Criteria to Tier 3.
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    \3\ ``Market Maker'' means a Member registered with the Exchange 
for the purpose of making markets in options contracts traded on the 
Exchange and that is vested with the rights and responsibilities 
specified in Chapter VI of Exchange Rules. See the Definitions 
Section of the Fee Schedule.
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Background
    The Exchange currently assesses transaction rebates and fees to all 
market participants which are based upon the total monthly volume

[[Page 5297]]

executed by the Member \4\ on MIAX PEARL in the relevant, respective 
origin type (not including Excluded Contracts) \5\ (as the numerator) 
expressed as a percentage of (divided by) TCV \6\ (as the denominator). 
In addition, the per contract transaction rebates and fees are applied 
retroactively to all eligible volume for that origin type once the 
respective threshold tier (``Tier'') has been reached by the Member. 
The Exchange aggregates the volume of Members and their Affiliates.\7\ 
Members that place resting liquidity, i.e., orders resting on the book 
of the MIAX PEARL System,\8\ are paid the specified ``maker'' rebate 
(each a ``Maker''), and Members that execute against resting liquidity 
are assessed the specified ``taker'' fee (each a ``Taker''). For 
opening transactions and ABBO \9\ uncrossing transactions, per contract 
transaction rebates and fees are waived for all market participants. 
Finally, Members are assessed lower transaction fees and receive lower 
rebates for order executions in standard option classes in the Penny 
Interval Program \10\ (``Penny Classes'') than for order executions in 
standard option classes which are not in the Penny Interval Program 
(``Non-Penny Classes''), where Members are assessed higher transaction 
fees and receive higher rebates.
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    \4\ ``Member'' means an individual or organization that is 
registered with the Exchange pursuant to Chapter II of the Exchange 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See the Definitions Section of 
the Fee Schedule and Exchange Rule 100.
    \5\ ``Excluded Contracts'' means any contracts routed to an away 
market for execution. See the Definitions Section of the Fee 
Schedule.
    \6\ ``TCV'' means total consolidated volume calculated as the 
total national volume in those classes listed on MIAX PEARL for the 
month for which the fees apply, excluding consolidated volume 
executed during the period time in which the Exchange experiences an 
``Exchange System Disruption'' (solely in the option classes of the 
affected Matching Engine (as defined below)). The term Exchange 
System Disruption, which is defined in the Definitions section of 
the Fee Schedule, means an outage of a Matching Engine or collective 
Matching Engines for a period of two consecutive hours or more, 
during trading hours. The term Matching Engine, which is also 
defined in the Definitions section of the Fee Schedule, is a part of 
the MIAX PEARL electronic system that processes options orders and 
trades on a symbol-by-symbol basis. Some Matching Engines will 
process option classes with multiple root symbols, and other 
Matching Engines may be dedicated to one single option root symbol 
(for example, options on SPY may be processed by one single Matching 
Engine that is dedicated only to SPY). A particular root symbol may 
only be assigned to a single designated Matching Engine. A 
particular root symbol may not be assigned to multiple Matching 
Engines. The Exchange believes that it is reasonable and appropriate 
to select two consecutive hours as the amount of time necessary to 
constitute an Exchange System Disruption, as two hours equates to 
approximately 1.4% of available trading time per month. The Exchange 
notes that the term ``Exchange System Disruption'' and its meaning 
have no applicability outside of the Fee Schedule, as it is used 
solely for purposes of calculating volume for the threshold tiers in 
the Fee Schedule. See the Definitions Section of the Fee Schedule.
    \7\ ``Affiliate'' means (i) an affiliate of a Member of at least 
75% common ownership between the firms as reflected on each firm's 
Form BD, Schedule A, or (ii) the Appointed Market Maker of an 
Appointed EEM (or, conversely, the Appointed EEM of an Appointed 
Market Maker). An ``Appointed Market Maker'' is a MIAX PEARL Market 
Maker (who does not otherwise have a corporate affiliation based 
upon common ownership with an EEM) that has been appointed by an EEM 
and an ``Appointed EEM'' is an EEM (who does not otherwise have a 
corporate affiliation based upon common ownership with a MIAX PEARL 
Market Maker) that has been appointed by a MIAX PEARL Market Maker, 
pursuant to the process described in the Fee Schedule. See the 
Definitions Section of the Fee Schedule.
    \8\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \9\ ``ABBO'' means the best bid(s) or offer(s) disseminated by 
other Eligible Exchanges (defined in Exchange Rule 1400(g) and 
calculated by the Exchange based on market information received by 
the Exchange from OPRA. See the Definitions Section of the Fee 
Schedule and Exchange Rule 100.
    \10\ See Securities Exchange Act Release No. 88992 (June 2, 
2020), 85 FR 35142 (June 8, 2020) (SR-PEARL-2020-06).
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Alternative Volume Criteria Threshold Change in Tier 2
    The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees 
set forth in Section (1)(a) of the Fee Schedule that apply to the MIAX 
PEARL Market Maker Origin, to modify the volume threshold for the 
alternative Volume Criteria in Tier 2. The MIAX PEARL Market Maker 
Origin set forth in Section 1)a) of the Fee Schedule currently provides 
an alternative Volume Criteria in Tier 2, which is based upon the total 
monthly volume executed by a MIAX PEARL Market Maker collectively in 
SPY/QQQ/IWM options on MIAX PEARL, expressed as a percentage of total 
consolidated national volume in SPY/QQQ/IWM options.\11\ Pursuant to 
this alternative Volume Criteria, a Market Maker is able to reach the 
Tier 2 threshold if the Market Maker's total executed monthly volume, 
not including Excluded Contracts, in SPY/QQQ/IWM options on MIAX PEARL 
is above 0.45% of total consolidated national monthly volume in SPY/
QQQ/IWM options. For this calculation, volume that is from resting 
liquidity (Maker) and taking liquidity (Taker) in SPY/QQQ/IWM options 
is counted towards the alternative Volume Criteria, and the 0.45% 
threshold does not have to be reached individually in each of the three 
symbols. A Market Maker is able to qualify for Tier 2 rebates and fees 
which will then be applicable to all volume executed by the MIAX PEARL 
Market Maker on MIAX PEARL. The two Volume Criteria available for Tier 
2 is based upon either: (a) The total monthly volume executed by the 
Market Maker in all options classes on MIAX PEARL, not including 
Excluded Contracts, (as the numerator), expressed as a percentage of 
(divided by) TCV (as the denominator); or (b) the total monthly volume 
executed by the MIAX PEARL Market Maker collectively in SPY/QQQ/IWM 
options on MIAX PEARL, not including Excluded Contracts, (as the 
numerator), expressed as a percentage of (divided by) SPY/QQQ/IWM TCV 
\12\ (as the denominator). Once either Volume Criteria threshold in 
Tier 2 is reached by the Market Maker, the Tier 2 per contract rebates 
and fees apply to all volume in all options classes executed by that 
MIAX PEARL Market Maker on MIAX PEARL.
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    \11\ See Securities Exchange Act Release No. 84592 (November 14, 
2018), 83 FR 58646 (November 20, 2018) (SR-PEARL-2018-23).
    \12\ ``SPY/QQQ/IWM TCV'' means total consolidated volume in SPY, 
QQQ, and IWM calculated as the total national volume in SPY, QQQ, 
and IWM for the month for which the fees apply, excluding 
consolidated volume executed during the period of time in which the 
Exchange experiences an Exchange System Disruption (solely in SPY, 
QQQ, or IWM options). See the Definitions Section of the Fee 
Schedule.
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    The Exchange proposes to modify the threshold for the alternative 
Volume Criteria in Tier 2 from 0.45% to 0.75% of total consolidated 
national monthly volume in SPY/QQQ/IWM options. With the proposed 
change, a Market Maker will be able to reach the alternative Volume 
Criteria in Tier 2 if the Market Maker's total executed monthly volume, 
not including Excluded Contracts, in SPY/QQQ/IWM options on MIAX PEARL 
is above 0.75% of total consolidated national monthly volume in SPY/
QQQ/IWM options. The Exchange is not modifying the calculation method 
for a Market Maker to reach the alternative Volume Criteria in Tier 2, 
only the threshold percentage. The Exchange proposes to make the 
corresponding change to the volume threshold percentage described in 
the explanatory paragraph for the alternative Volume Criteria for Tier 
2 that is below the tables in Section 1)a) of the Fee Schedule.
    The purpose of this proposed change is for business and competitive 
reasons. In order to attract order flow, the Exchange initially set its 
volume threshold for the alternative Volume Criteria in Tier 2 at a 
meaningful low level. The Exchange now believes that it is appropriate 
to adjust this volume threshold so that it is more in line with

[[Page 5298]]

the volume threshold that Market Makers currently achieve in SPY/QQQ/
IWM options on MIAX PEARL. The Exchange believes that the proposed 
volume threshold will still remain highly competitive such that the 
threshold should enable the Exchange to continue to attract order flow 
in SPY/QQQ/IWM options and maintain market share. The Exchange cannot 
predict with certainty how many Market Makers would achieve the 
alternative Volume Criteria in Tier 2 with the increased threshold 
percentage, but the Exchange anticipates that each Market Maker that is 
currently in Tier 2 with that alternative method will likely continue 
to reach that Tier.
Alternative Volume Criteria for Tier 3
    The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees 
set forth in Section (1)(a) of the Fee Schedule that apply to the MIAX 
PEARL Market Maker Origin, to add a new, alternative Volume Criteria to 
Tier 3, based upon the total monthly volume executed in SPY options on 
MIAX PEARL by a MIAX PEARL Market Maker when adding liquidity. Pursuant 
to this alternative Volume Criteria, Market Makers will qualify for: 
(i) Maker rebates of ($0.44) in SPY, QQQ and IWM options for their 
Market Maker Origin when trading against Origins not Priority Customer, 
and (ii) Maker rebates of ($0.42) in SPY, QQQ and IWM options for their 
Market Maker Origin when trading against Priority Customer Origins, if 
the Market Maker executes at least 1.10% in SPY options when adding 
liquidity. The Exchange proposes that, in Tier 3 for MIAX PEARL Market 
Makers, the alternative Volume Criteria (above 1.10% in SPY when Adding 
Liquidity) will be calculated based on the total monthly volume that 
added liquidity executed by the Market Maker solely in SPY options on 
MIAX PEARL, not including Excluded Contracts, (as the numerator) 
expressed as a percentage of (divided by) SPY TCV \13\ (as the 
denominator). The Exchange notes that Market Makers that achieve the 
standard Tier 3 volume percentage but do not qualify for the proposed 
alternative Volume Criteria in that Tier, will receive the Tier 3 rates 
in the Market Maker Origin table in Penny Classes and Non-Penny 
Classes. Members will receive the highest tier based on the thresholds 
achieved. Other Penny classes and Non-Penny classes will receive the 
Tier 3 rates in the Market Maker Origin table. The Exchange proposes to 
designate the Tier 3 alternative Volume Criteria with the new symbol 
``[lozf]'' in Tier 3 of the Market Maker Origin table in Section (1)(a) 
of the Fee Schedule, with an explanatory paragraph listed below the 
tables in Section (1)(a) of the Fee Schedule.
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    \13\ ``SPY TCV'' means total consolidated volume in SPY 
calculated as the total national volume in SPY for the month for 
which the fees apply, excluding consolidated volume executed during 
the period of time in which the Exchange experiences an Exchange 
System Disruption (solely in SPY options). See the Definitions 
Section of the Fee Schedule.
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    The purpose of this proposed change is for business and competitive 
reasons. The Exchange cannot predict with certainty how many Market 
Makers would achieve the proposed Tier 3 alternative Volume Criteria, 
but anticipates that approximately three Market Makers are within 
reasonable proximity to potentially achieve the higher rebates in SPY/
QQQ/IWM options based upon the total monthly volume executed in SPY 
options on MIAX PEARL by the current MIAX PEARL Market Makers.
    The proposed changes are scheduled to become operative January 4, 
2021.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \14\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act,\15\ in that it 
is an equitable allocation of reasonable dues, fees and other charges 
among Exchange members and issuers and other persons using its 
facilities, and 6(b)(5) of the Act,\16\ in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanisms of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4).
    \16\ 15 U.S.C. 78f(b)(1) and (b)(5).
---------------------------------------------------------------------------

    The Exchange believes its proposal to modify the volume threshold 
for the alternative Volume Criteria in Tier 2 and add a new, 
alternative Volume Criteria to Tier 3 provides for the equitable 
allocation of reasonable dues and fees and is not unfairly 
discriminatory for the following reasons. The Exchange operates in a 
highly competitive 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.'' \17\ 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 15% of the market share of 
executed volume of multiply-listed equity and ETF options trades as of 
December 24, 2020, for the month of December 2020.\18\ Therefore, no 
exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. More specifically, 
as of December 30, 2020, the Exchange had an approximately 3.10% market 
share of executed volume of multiply-listed equity and ETF options for 
the month of December 2020.\19\
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    \17\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
    \18\ See https://www.cboe.com/us/options/market_share/.
    \19\ See id.
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    The Exchange believes that the ever-shifting market shares among 
the exchanges from month to month demonstrates that market participants 
can shift order flow, or discontinue or reduce use of certain 
categories of products, in response to transaction and/or non-
transaction fee changes. For example, on February 28, 2019, the 
Exchange 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).\20\ The Exchange experienced a 
decrease in total market share between the months of February and March 
of 2019, after the fees were in effect. Accordingly, the Exchange 
believes that the March 1, 2019 fee change may have contributed to the 
decrease in the Exchange's market share and, as such, the Exchange 
believes competitive forces constrain options exchange transaction fees 
and market participants can shift order flow based on fee changes 
instituted by the exchanges.
---------------------------------------------------------------------------

    \20\ 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 Exchange believes its proposal to modify the volume threshold 
for the alternative Volume Criteria in Tier 2

[[Page 5299]]

and add a new, alternative Volume Criteria to Tier 3 is reasonable, 
equitably allocated and not unfairly discriminatory because these 
changes are for business and competitive reasons. In order to attract 
order flow, the Exchange initially set its volume threshold for the 
alternative Volume Criteria in Tier 2 at a meaningful low level. The 
Exchange now believes that it is appropriate to adjust this volume 
threshold so that it is more in line with the volume threshold that 
Market Makers currently achieve in SPY/QQQ/IWM options on MIAX PEARL. 
The Exchange believes that the proposed volume threshold will still 
remain highly competitive such that the threshold should enable the 
Exchange to continue to attract order flow in SPY/QQQ/IWM options and 
maintain market share.
    The Exchange believes its proposal to establish the alternative 
Volume Criteria for Tier 3 is reasonable, equitable, and not unfairly 
discriminatory, as it is a form of pricing already adopted by the 
Exchange \21\ and a form of pricing based upon trading activity in a 
select group of symbols, which is a common practice on many U.S. 
options exchanges as a means to incentivize order flow to be sent to an 
exchange for execution in actively traded options classes. The 
Exchange's affiliate, Miami International Securities Exchange, LLC 
(``MIAX Options''), offers differentiated pricing for transactions in 
options underlying certain select symbols.\22\ Other options exchanges' 
fee schedules distinguish by symbol and specifically assess different 
fees and rebates for transactions in select symbols for the same market 
participants.\23\
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    \21\ See supra note 11. See generally, Section (1)(a) of the Fee 
Schedule for Market Maker Origin.
    \22\ See MIAX Options Fee Schedule, Section (1)(a)(iii).
    \23\ See Nasdaq ISE, LLC (``ISE'') Fee Schedule, Section 3, 
Regular Order Fees and Rebates. The ISE Fee Schedule provides for a 
``Market Maker Plus'' program for Select and Non-Select Symbols, 
with tiered incentives for Market Makers. Further, the ISE Fee 
Schedule provides for a linked maker rebate for SPY, QQQ and IWM, in 
which the linked maker rebate applies to executions in SPY, QQQ, and 
IWM if the ISE Market Maker does not achieve the applicable tier in 
that symbol but achieves the tier (i.e., any of the Market Maker 
Plus Tiers 2-4) for any badge/suffix combination in the other linked 
symbol, in which case the higher tier achieved applies to both 
symbols.
---------------------------------------------------------------------------

    The Exchange believes its proposal to offer an alternative Tier 3 
Volume Criteria based upon the total monthly volume executed in SPY 
options on MIAX PEARL by a MIAX PEARL Market Maker when adding 
liquidity, will incentivize Market Makers to improve their posted 
liquidity to the benefit of the entire market, which will increase 
order flow sent to the Exchange, benefiting all market participants 
through increased liquidity, tighter markets and order interaction.
    The Exchange also believes that its proposal is not unfairly 
discriminatory as all Market Makers can qualify for the alternative 
Volume Criteria in Tiers 2 and 3 by meeting the requirements that are 
designed to incentivize Market Makers to maintain quality markets. In 
addition, the Exchange continues to believe that it is not unfairly 
discriminatory to offer rebates pursuant to this proposal to only 
Market Makers because Market Makers add value through continuous 
quoting and are subject to additional requirements and obligations 
(such as quoting obligations) that other market participants are not.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
    The Exchange believes its proposal will not impose any burden on 
intra-market competition because the Exchange believes that its 
proposal will not place any category of Exchange market participant at 
a competitive disadvantage. The proposal to modify the volume threshold 
for the alternative Volume Criteria in Tier 2 and add a new, 
alternative Volume Criteria to Tier 3, is intended to improve market 
quality. The Exchange believes that its proposal will encourage Market 
Makers to improve market quality by providing an additional incentive 
to Market Makers in SPY and QQQ/IWM options to send additional SPY and 
QQQ/IWM orders, which results in narrower bid-ask spreads and increased 
depth of liquidity. This in turn will attract additional order flow to 
the Exchange. Accordingly, the Exchange believes that the proposed 
changes will continue to attract order flow to the Exchange, thereby 
encouraging additional volume and liquidity to the benefit of all 
market participants.
    The Exchange believes its proposal will not impose any burden on 
inter-market competition because 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, or rebate opportunities available at other venues to be 
more favorable. In such an environment, the Exchange must continually 
adjust its fees to remain competitive with other options exchanges. 
Because competitors are free to modify their own fees in response, and 
because market participants may readily adjust their order routing 
practices, the Exchange believes that the degree to which fee changes 
in this market may impose any burden on competition is extremely 
limited. The Exchange believes that the proposed rule changes reflect 
this competitive environment because they modify the Exchange's fees in 
a manner that encourages market participants to continue to provide 
liquidity and to send order flow to the Exchange.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\24\ and Rule 19b-4(f)(2) \25\ 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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    \24\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \25\ 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-PEARL-2020-38 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.


[[Page 5300]]


All submissions should refer to File Number SR-PEARL-2020-38. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-PEARL-2020-38 and should be submitted on 
or before February 9, 2021.
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    \26\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-00949 Filed 1-15-21; 8:45 am]
BILLING CODE 8011-01-P
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