Self-Regulatory Organizations; MIAX PEARL, LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Changes To Amend the MIAX Pearl Options Fee Schedule To Increase the Monthly Fees for MIAX Express Network Full Service Ports, 49360-49364 [2021-18949]

Download as PDF 49360 Federal Register / Vol. 86, No. 168 / Thursday, September 2, 2021 / Notices continued listing condition, that each business day, before the opening of trading in the regular market session, an investment company make publicly available on its website the composition of any Custom Basket transacted on the previous business day, except a Custom Basket that differs from the applicable Proxy Basket only with respect to cash, also furthers the goals of transparency and full and fair disclosure, to the benefit of investors and the public interest. 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 that is not necessary or appropriate in furtherance of the purpose of the Act. The Exchange believes the proposed rule change, by permitting the use of Custom Baskets, is consistent with a fund’s exemptive relief, would introduce additional competition among various ETF products to the benefit of investors. 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 Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. lotter on DSK11XQN23PROD with NOTICES1 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– NASDAQ–2021–065 on the subject line. VerDate Sep<11>2014 17:33 Sep 01, 2021 Jkt 253001 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–NASDAQ–2021–065. 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–NASDAQ–2021–065 and should be submitted on or before September 23, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Vanessa A. Countryman, Secretary. [FR Doc. 2021–18943 Filed 9–1–21; 8:45 am] BILLING CODE 8011–01–P 9 17 PO 00000 CFR 200.30–3(a)(12). Frm 00074 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–92798; File No. SR– PEARL–2021–33] Self-Regulatory Organizations; MIAX PEARL, LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Changes To Amend the MIAX Pearl Options Fee Schedule To Increase the Monthly Fees for MIAX Express Network Full Service Ports August 27, 2021. I. Introduction On July 1, 2021, MIAX PEARL, LLC (‘‘MIAX Pearl’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change (File Number SR–PEARL–2021–33) to amend the MIAX Pearl Options Fee Schedule (‘‘Fee Schedule’’) to increase monthly fees for the Exchange’s MIAX Express Network Full Service MEO Ports.3 The proposed rule change was immediately effective upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Act.4 The proposed rule change was published for comment in the Federal Register on July 15, 2021.5 The Commission has received no comment letters on the proposed rule change. Under Section 19(b)(3)(C) of the Act,6 the Commission is hereby: (i) Temporarily suspending File Number SR–PEARL–2021–33; and (ii) instituting proceedings to determine whether to approve or disapprove File Number SR– PEARL–2021–33. II. Description of the Proposed Rule Change MIAX Pearl proposes to increase the monthly fees for Full Service MEO Ports, which fee increases became effective July 1, 2021.7 The Exchange states that Full Service MEO Ports are used for by options Members to submit 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 ‘‘MEO Interface’’ or ‘‘MEO’’ means a binary order interface for certain order types as set forth in Rule 516 into the MIAX Pearl System. See Notice, infra note 5, at 37347 n.3. 4 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take effect upon filing with the Commission if it is designated by the exchange as ‘‘establishing or changing a due, fee, or other charge imposed by the self-regulatory organization on any person, whether or not the person is a member of the self-regulatory organization.’’ 15 U.S.C. 78s(b)(3)(A)(ii). 5 See Securities Exchange Act Release No. 92365 (July 9, 2021), 86 FR 37347 (‘‘Notice’’). 6 15 U.S.C. 78s(b)(3)(C). 7 See Notice, supra note 5, at 37347. 2 17 E:\FR\FM\02SEN1.SGM 02SEN1 Federal Register / Vol. 86, No. 168 / Thursday, September 2, 2021 / Notices quotes and orders and allow for a higher throughput rates than other ports offered by the Exchange, such as FIX ports.8 Full Service MEO Ports are of two types: Bulk and Single.9 An options Member using Full Service MEO Ports may be allocated up to two (2) Full Service MEO Ports for each Matching Engine to which it connects (two Bulk, two Single, or one of each), and the monthly fee for Full Service MEO Port use will be determined by volume, according to tiered schedules.10 More specifically, the Exchange assesses Members Full Service MEO Port fees based upon the monthly total volume executed by a Member and its Affiliates 11 on the Exchange across all origin types, not including Excluded Contracts,12 as compared to the Total Consolidated Volume (‘‘TCV’’),13 in all MIAX Pearl-listed options, with separate schedules for Bulk and Single. The Exchange proposes to increase fees for all Full Service MEO Port as follows: For Full Service MEO Ports—Bulk, if the Member’s relevant monthly volume falls within the parameters of: • Tier 1 (up to 0.30% TCV): The monthly fee would increase from $3,000 to $5,000; • Tier 2 (above 0.30%, up to 0.60% TCV): The monthly fee would increase from $4,500 to $7,500; and • Tier 3 (above 0.60% TCV): The monthly fee would increase from $5,000 to $10,000. For Full Service MEO Ports—Single, if the Member’s relevant monthly volume falls within the parameters of: 8 See Notice, supra note 5, at 37349. Notice, supra note 5, at 37348 n. 5–6. ‘‘Full Service MEO Port—Bulk’’ means an MEO port that supports all MEO input message types and binary bulk order entry ‘‘Full Service MEO Port—Single’’ means an MEO port that supports all MEO input message types and binary order entry on a single order-by-order basis, but not bulk orders. 10 See Notice, supra note 5, at 37348. The Exchange states that it currently has twelve matching engines, which means that for a single monthly fee, a Member may receive up to twentyfour Full Service MEO Ports for that single fee. Id. 11 ‘‘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). See Notice, supra note 5, at 37348 n.11. 12 ‘‘Excluded Contracts’’ means any contracts routed to an away market for execution. See Notice, supra note 5, at 37348 n.12. 13 ‘‘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 of time in which the Exchange experiences an Exchange System Disruption (solely in the option classes of the affected Matching Engine). See Notice, supra note 5, at 37348 n.13. lotter on DSK11XQN23PROD with NOTICES1 9 See VerDate Sep<11>2014 17:33 Sep 01, 2021 Jkt 253001 • Tier 1 (up to 0.30% TCV): The monthly fee would increase from $2,000 to $2,500; • Tier 2 (above 0.30%, up to 0.60% TCV): The monthly fee would increase from $3,375 to $3,500; and • Tier 3 (above 0.60% TCV): The monthly fee would increase from $3,750 to $4,500. III. Suspension of the Proposed Rule Change Pursuant to Section 19(b)(3)(C) of the Act,14 at any time within 60 days of the date of filing of an immediately effective proposed rule change pursuant to Section 19(b)(1) of the Act,15 the Commission summarily may temporarily suspend the change in the rules of a self-regulatory organization (‘‘SRO’’) if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. As discussed below, the Commission believes a temporary suspension of the proposed rule change is necessary and appropriate to allow for additional analysis of the proposed rule change’s consistency with the Act and the rules thereunder. In support of the proposed fee increases, the Exchange argues principally that the fees for Full Service MEO Ports are constrained by competitive forces, and that this is supported by their revenue and cost analysis. In particular, the Exchange states that there are 16 options markets that are ‘‘highly competitive’’ and that reliance on competitive markets is an appropriate means to ensure equitable and reasonable prices.16 In further support of its argument that competitive forces constrain its proposed Full Service MEO Port fee increases, the Exchange states that there is no regulatory requirement that any market participant connect to the Exchange or that any market participant connect at any specific connection speed.17 The Exchange further states no options market participant is required by rule, regulation, or competitive forces to be a Member of the Exchange, which the Exchange believes is illustrated by the fact that it is unaware of any one options exchange whose membership 14 15 U.S.C. 78s(b)(3)(C). U.S.C. 78s(b)(1). 16 See id. at 37350. The Exchange adds that the Exchange had combined market share of 5.31% in June 2021 and it is aware of no evidence that this provides the Exchange with anti-competitive pricing power. 17 See id. at 37354. 15 15 PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 49361 includes every registered brokerdealer.18 The Exchange also states that the proposed fees are designed to recover a portion of the costs associated with directly accessing the Exchange and that the proposed increases are reasonable and appropriate to allow the Exchange to offset expenses the Exchange has and will incur in relation to providing the Full Service MEO Ports.19 The Exchange provides an analysis of its revenues, costs, and profitability associated with these fees, which it references as ‘‘Proposed Access Fees.’’ The Exchange states that this analysis reflects an extensive cost review in which the Exchange analyzed every expense item in the Exchange’s general expense ledger to determine whether each such expense relates to the Proposed Access Fees, and, if such expense did so relate, what portion (or percentage) of such expense actually supports the access services.20 The Exchange states that this analysis shows fee increase will not result in excessive pricing or supracompetitive profits when compared to the Exchange’s annual expense associated with providing the MEO Ports versus the annual revenue for the MEO Ports.21 The Exchange states that for 2021, the total annual expense for providing the access services associated with the Proposed Access Fees for the Exchange is projected to be approximately $897,084.22 The $897,084 in projected total annual expense is comprised of the following, all of which the Exchange states are directly related to the access services associated with the Proposed Access Fees: (1) Third-party expense, relating to fees paid by the Exchange to third-parties for certain products and services; and (2) internal expense, relating to the internal costs of the Exchange to provide the services associated with the Proposed Access Fees. The Exchange states that the $897,084 in projected total annual expense is directly related to the access services associated with the Proposed Access Fees, and not any other product or service offered by the Exchange. The Exchange states that the total third-party expense, relating to fees paid by the Exchange to third-parties for 18 See Notice, supra note 5, at 37454–55. Notice, supra note 5, at 37349. 20 See Notice, supra note 5, at 37350. The Exchange also states that no expense amount is allocated twice and the expenses only cover the MIAX Pearl options market. Id. at 37354. Expenses associated with the MIAX Pearl equities market are accounted for separately and are not within the scope of this filing. See id. at 37384. 21 See Notice, supra note 5, at 37350. 22 See Notice, supra note 5, at 37351. 19 See E:\FR\FM\02SEN1.SGM 02SEN1 49362 Federal Register / Vol. 86, No. 168 / Thursday, September 2, 2021 / Notices certain products and services for the Exchange to be able to provide the access services associated with the Proposed Access Fees is projected to be $40,166 for 2021.23 The Exchange represents that it determined whether third-party expenses related to the access services associated with the Proposed Access Fees, and, if such expense did so relate, determined what portion (or percentage) of such expense represents the cost to the Exchange to provide access services associated with the Proposed Access Fees. This includes allocating a portion of fees paid to: (1) Equinix, for data center services (approximately 1.80% of the Exchange’s total applicable Equinix expense); (2) Zayo Group Holdings, Inc. for network services (approximately 0.90%); (3) Secure Financial Transaction Infrastructure and various other services providers (approximately 0.90%); and (4) various other hardware and software providers (approximately 0.90%). In addition, the Exchange states that the total internal expense, relating to the internal costs of the Exchange to provide the access services associated with the Proposed Access Fees, is projected to be $856,918 for 2021.24 The Exchange represents that: (1) The Exchange’s employee compensation and benefits expense relating to providing the access services associated with the Proposed Access Fees is projected to be $783,513, which is a portion of the Exchange’s total projected expense of $9,163,894 for employee compensation and benefits (approximately 8.55%); (2) the Exchange’s depreciation and amortization expense relating to providing the access services associated with the Proposed Access Fees is projected to be $64,456, which is a portion of the Exchange’s total projected expense of $2,864,716 for depreciation and amortization (approximately 2.25%); 25 and (3) the Exchange’s occupancy expense relating to providing the access services associated with the Proposed Access Fees is projected to be $8,949, which is a portion of the Exchange’s total projected expense of $497,180 for occupancy (approximately 1.80%). The Exchange states that this cost and revenue analysis shows that the lotter on DSK11XQN23PROD with NOTICES1 23 See Notice, supra note 5, at 37351–52. 24 See Notice, supra note 5, at 37352–53. 25 The Exchange states that the total projected expense of $2,864,716 for depreciation and amortization differs from the projected expense of depreciation and amortization projected by the Exchange in a different filing (SR–PEARL–2021–32) because the Exchange factors in the depreciation of its own internally developed software when assessing costs for Full Service MEO Ports, resulting in a higher depreciation expense number in this filing. See Notice, supra note 5, at 37353, n.30. VerDate Sep<11>2014 17:33 Sep 01, 2021 Jkt 253001 proposed rule change will not result in excessive pricing or supra-competitive profit.26 The Exchange projects that, on a fully-annualized basis, the Proposed Access Fees will have an expense of $897,084 per annum and a projected revenue of $1,467,000 per year, resulting in a projected profit margin of 39% ($1,467,000 in projected revenue minus $897,084 in projected expense = $578,916 profit per year). The Exchange states that this estimated profit margin for Full Service MEO Port fees is well below the operating profit margins of other competing exchanges based on financial statements filed by them in 2019 Form 1 amendments.27 The Exchange also states that its proposed increased Full Service MEO Port fees are in line with, or cheaper than, the similar port fees or similar membership fees charged by other options exchanges.28 The Exchange further states that its proposed fees are reasonable, equitably allocated and not unfairly discriminatory because the Exchange, and its affiliates Miami International Securities Exchange, LLC (‘‘MIAX’’) and MIAX Emerald, LLC (‘‘MIAX Emerald’’), are still recouping the initial expenditures from building out their systems while ‘‘legacy’’ exchanges have already paid for and built their systems.29 The Exchange also notes that its affiliates, MIAX and MIAX Emerald, also charge fees for their high throughput, low latency MEI Ports in a similar fashion as the Exchange charges for its MEO Ports.30 Furthermore, the Exchange notes that it has historically undercharged for Full Service MEO Ports as compared to other options exchanges and the proposed monthly fee increases for Full Service MEO Ports would bring the Exchange’s fees more in line with that of other options exchanges, while maintaining a competitive fee structure for Full Service MEO Ports.31 The Exchange states that the proposed fees are equitably allocated, not unfairly discriminatory, and do not impose an unnecessary or inappropriate burden on competition because the Proposed Access Fees do not favor certain categories of market participants,32 the 26 See Notice, supra note 5, at 37353. Notice, supra note 5, at 37354. The Exchange states that Nasdaq ISE, LLC’s operating profit margin for 2019 was 83% and Nasdaq PHLX LLC’s operating profit margin for 2019 was 67%. 28 See Notice, supra note 5, at 37349. See also Notice, supra note 5, at 37348 n.9. 29 See Notice, supra note 5, at 37354. 30 See MIAX Fee Schedule, Section (5)(d)(ii); MIAX Emerald Fee Schedule, Section (5)(d)(ii). 31 See Notice, supra note 5, at 37349. 32 See id. at 37354. 27 See PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 allocation of the Proposed Access Fees reflects the network resources consumed by the various size of the market participants, with the lowest bandwidth consuming members paying the least, and the highest bandwidth consuming paying the most; 33 and options market participants are not forced to connect to (and purchase MEO Ports from) all options exchanges.34 When exchanges file their proposed rule changes with the Commission, including fee filings like the Exchange’s present proposal, they are required to provide a statement supporting the proposal’s basis under the Act and the rules and regulations thereunder applicable to the exchange.35 The instructions to Form 19b–4, on which exchanges file their proposed rule changes, specify that such statement ‘‘should be sufficiently detailed and specific to support a finding that the proposed rule change is consistent with [those] requirements.’’ 36 Section 6 of the Act, including Sections 6(b)(4), (5), and (8), require the rules of an exchange to (1) provide for the equitable allocation of reasonable fees among members, issuers, and other persons using the exchange’s facilities; 37 (2) perfect the mechanism of a free and open market and a national market system, protect investors and the public interest, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers; 38 and (3) not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.39 In temporarily suspending the Exchange’s fee change, the Commission intends to further consider whether the proposal to increase fees for the Exchange’s Full Service MEO Ports is consistent with the statutory requirements applicable to a national securities exchange under the Act. In particular, the Commission will consider whether the proposed rule change satisfies the standards under the Act and the rules thereunder requiring, among other things, that an exchange’s rules provide for the equitable allocation of reasonable fees among members, issuers, and other persons 33 See Notice, supra note 5, at 37355. a more detailed description of the Exchange’s justifications for the proposed rule change, see Notice, supra note 5, at 37349–55. 35 See 17 CFR 240.19b–4 (Item 3 entitled ‘‘SelfRegulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change’’). 36 Id. 37 15 U.S.C. 78f(b)(4). 38 15 U.S.C. 78f(b)(5). 39 15 U.S.C. 78f(b)(8). 34 For E:\FR\FM\02SEN1.SGM 02SEN1 Federal Register / Vol. 86, No. 168 / Thursday, September 2, 2021 / Notices using its facilities; not permit unfair discrimination between customers, issuers, brokers or dealers; and do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.40 Therefore, the Commission finds that it is appropriate in the public interest, for the protection of investors, and otherwise in furtherance of the purposes of the Act, to temporarily suspend the proposed rule change.41 IV. Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change lotter on DSK11XQN23PROD with NOTICES1 In addition to temporarily suspending the proposal, the Commission also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 42 and 19(b)(2)(B) of the Act 43 to determine whether the proposed rule change should be approved or disapproved. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, the Commission seeks and encourages interested persons to provide additional comment on the proposed rule change to inform the Commission’s analysis of whether to approve or disapprove the proposed rule change. Pursuant to Section 19(b)(2)(B) of the Act,44 the Commission is providing notice of the grounds for possible disapproval under consideration: • Whether the Exchange has demonstrated how the proposal is consistent with Section 6(b)(4) of the Act, which requires that the rules of a national securities exchange ‘‘provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities;’’ 45 40 See 15 U.S.C. 78f(b)(4), (5), and (8), respectively. 41 For purposes of temporarily suspending the proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 42 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily suspends a proposed rule change, Section 19(b)(3)(C) of the Act requires that the Commission institute proceedings under Section 19(b)(2)(B) to determine whether a proposed rule change should be approved or disapproved. 43 15 U.S.C. 78s(b)(2)(B). 44 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also provides that proceedings to determine whether to disapprove a proposed rule change must be concluded within 180 days of the date of publication of notice of the filing of the proposed rule change. See id. The time for conclusion of the proceedings may be extended for up to 60 days if the Commission finds good cause for such extension and publishes its reasons for so finding, or if the exchange consents to the longer period. See id. 45 15 U.S.C. 78f(b)(4). VerDate Sep<11>2014 17:33 Sep 01, 2021 Jkt 253001 • Whether the Exchange has demonstrated how the proposal is consistent with Section 6(b)(5) of the Act, which requires, among other things, that the rules of a national securities exchange be ‘‘designed to perfect the operation of a free and open market and a national market system’’ and ‘‘protect investors and the public interest,’’ and not be ‘‘designed to permit unfair discrimination between customers, issuers, brokers, or dealers;’’ 46 and • Whether the Exchange has demonstrated how the proposal is consistent with Section 6(b)(8) of the Act, which requires that the rules of a national securities exchange ‘‘not impose any burden on competition not necessary or appropriate in furtherance of the purposes of [the Act].’’ 47 As discussed in Section III above, the Exchange makes various arguments in support of the proposal. The Commission believes that there are questions as to whether the Exchange has provided sufficient information to demonstrate that the proposal to increase Full Service MEO Port fees is consistent with the Act and the rules thereunder. Under the Commission’s Rules of Practice, the ‘‘burden to demonstrate that a proposed rule change is consistent with the [Act] and the rules and regulations issued thereunder . . . is on the [SRO] that proposed the rule change.’’ 48 The description of a proposed rule change, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to support an affirmative Commission finding,49 and any failure of an SRO to provide this information may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Act and the applicable rules and regulations.50 The Commission is instituting proceedings to allow for additional consideration and comment on the issues raised herein, including as to whether the proposal is consistent with the Act, specifically, with its requirements that the rules of a national securities exchange provide for the equitable allocation of reasonable dues, fees, and other charges among its members, issuers, and other persons using its facilities; are designed to 46 15 U.S.C. 78f(b)(5). U.S.C. 78f(b)(8). 48 17 CFR 201.700(b)(3). 49 See id. 50 See id. 47 15 PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 49363 perfect the operation of a free and open market and a national market system, and to protect investors and the public interest; are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers; and do not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act; 51 as well as any other provision of the Act, or the rules and regulations thereunder. V. Commission’s Solicitation of Comments The Commission requests written views, data, and arguments with respect to the concerns identified above as well as any other relevant concerns. Such comments should be submitted by September 23, 2021. Rebuttal comments should be submitted by October 7, 2021. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.52 The Commission asks that commenters address the sufficiency and merit of the Exchange’s statements in support of the proposal, in addition to any other comments they may wish to submit about the proposed rule change. Interested persons are invited to submit written data, views, and arguments concerning the proposed rule change, including whether the proposal is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File No. SR– PEARL–2021–33 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–PEARL–2021–33. This file number should be included on the 51 See 15 U.S.C. 78f(b)(4), (5), and (8). U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the Commission flexibility to determine what type of proceeding—either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by an SRO. See Securities Acts Amendments of 1975, Report of the Senate Committee on Banking, Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 52 15 E:\FR\FM\02SEN1.SGM 02SEN1 49364 Federal Register / Vol. 86, No. 168 / Thursday, September 2, 2021 / Notices 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–2021–33 and should be submitted on or before September 23, 2021. Rebuttal comments should be submitted by October 7, 2021. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(3)(C) of the Act,53 that File Number SR–PEARL–2021–33 be and hereby is, temporarily suspended. In addition, the Commission is instituting proceedings to determine whether the proposed rule change should be approved or disapproved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.54 Vanessa A. Countryman, Secretary. [FR Doc. 2021–18949 Filed 9–1–21; 8:45 am] lotter on DSK11XQN23PROD with NOTICES1 BILLING CODE 8011–01–P 53 15 54 17 U.S.C. 78s(b)(3)(C). CFR 200.30–3(a)(57) and (58). VerDate Sep<11>2014 17:33 Sep 01, 2021 Jkt 253001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–92789; File Nos. SR–MIAX– 2021–28, SR–EMERALD–2021–21] Self-Regulatory Organizations; Miami International Securities Exchange, LLC and MIAX Emerald, LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Changes To Establish Fees for the Exchanges’ cToM Market Data Products August 27, 2021. I. Introduction On June 30, 2021, Miami International Securities Exchange, LLC (‘‘MIAX’’) and MIAX Emerald, LLC (‘‘MIAX Emerald’’) (each, an ‘‘Exchange,’’ and collectively, the ‘‘Exchanges’’) each filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to establish fees for, respectively, the MIAX Complex Top of Market (‘‘cToM’’) and the MIAX Emerald cToM market data products. The proposed rule changes were immediately effective upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Act.3 The proposed rule changes were published for comment in the Federal Register on July 15, 2021.4 Pursuant to Section 19(b)(3)(C) of the Act,5 the Commission is hereby: (1) Temporarily suspending the proposed rule changes; and (2) instituting proceedings to determine whether to approve or disapprove the proposed rule changes. II. Description of the Proposed Rule Changes The Exchanges propose to establish fees for their cToM market data products.6 According to the Exchanges, the cToM feed provides subscribers with the same information as the Exchanges’ respective simple order market Top of Market (‘‘ToM’’) feeds, 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take effect upon filing with the Commission if it is designated by the exchange as ‘‘establishing or changing a due, fee, or other charge imposed by the self-regulatory organization on any person, whether or not the person is a member of the self-regulatory organization.’’ 15 U.S.C. 78s(b)(3)(A)(ii). 4 See Securities Exchange Act Release Nos. 92359 (July 9, 2021), 86 FR 37393 (SR–MIAX–2021–28); and 92358 (July 9, 2021), 86 FR 37361 (SR– EMERALD–2021–21) (each, a ‘‘Notice’’). For ease of reference, page citations are to the Notice for SR– MIAX–2021–28, unless otherwise indicated. 5 15 U.S.C. 78s(b)(3)(C). 6 The proposed fee changes became effective on July 1, 2021. See Notice, supra note 4, at 37394. 2 17 PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 but for each Exchange’s Strategy Book 7 (i.e., best bid and offer for a complex strategy, with aggregate size, based on displayable order and quoting interest in the complex strategy on each Exchange), plus additional information specific to complex orders (i.e., identification of the complex strategies currently trading on each Exchange, complex strategy last sale information, and the status of securities underlying the complex strategy).8 The Exchanges each propose to assess Internal Distributors 9 $1,250 per month and External Distributors 10 $1,750 per month for the cToM data feed.11 The Exchanges each will assess cToM fees on Internal and External Distributors in each month the Distributor is credentialed to use cToM, and will reduce such fees for new Distributors for the first month during which they subscribe to cToM based on the number of trading days that have been held during the month prior to the date on which that subscriber has been credentialed to use cToM.12 7 The ‘‘Strategy Book’’ is each Exchange’s electronic book of complex orders and complex quotes. See MIAX and MIAX Emerald Rule 518(a)(17). 8 The Exchanges state that cToM is a distinct market data product from ToM. They also state that ToM subscribers are not required to subscribe to cToM, and that cToM subscribers are not required to subscribe to ToM. See Notice, supra note 4, at 37394. 9 A ‘‘Distributor’’ of the Exchanges’ data is any entity that receives a feed or file of data either directly from the Exchanges or indirectly through another entity and then distributes it either internally (within that entity) or externally (outside that entity). See MIAX and MIAX Emerald Fee Schedule, Section 6(a). All members or nonmembers that determine to receive any market data feed from the Exchanges must first execute, among other things, the MIAX Exchange Group Exchange Data Agreement (‘‘Exchange Data Agreement’’). See Notice, supra note 4, at 37395. Pursuant to the Exchange Data Agreement, ‘‘Internal Distributors’’ are restricted to the ‘‘internal use’’ of any market data they receive, meaning they may only distribute the Exchanges’ market data to their officers and employees and their affiliates. See id. 10 ‘‘External Distributors’’ may distribute the Exchanges’ market data to persons who are not their officers, employees, or affiliates, and may charge their own fees for the distribution of such market data. See Notice, supra note 4, at 37395. 11 See id. at 37394. The Exchanges also propose to make a related change to remove ‘‘(as applicable)’’ from the explanatory paragraph in Section 6(a) of each Exchanges’ fee schedule, as the Exchanges will now charge fees for both the ToM and cToM data feeds. See id. at 37394 n.10. 12 New Distributors will be assessed a pro-rata percentage of the fees described above, which is the percentage of the number of trading days remaining in the affected calendar month as of the date on which they have been credentialed to use cToM, divided by the total number of trading days in the affected calendar month. See id. at 37394. E:\FR\FM\02SEN1.SGM 02SEN1

Agencies

[Federal Register Volume 86, Number 168 (Thursday, September 2, 2021)]
[Notices]
[Pages 49360-49364]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-18949]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92798; File No. SR-PEARL-2021-33]


Self-Regulatory Organizations; MIAX PEARL, LLC; Suspension of and 
Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove Proposed Rule Changes To Amend the MIAX Pearl Options Fee 
Schedule To Increase the Monthly Fees for MIAX Express Network Full 
Service Ports

August 27, 2021.

I. Introduction

    On July 1, 2021, MIAX PEARL, LLC (``MIAX Pearl'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change (File Number SR-PEARL-2021-33) to amend the MIAX 
Pearl Options Fee Schedule (``Fee Schedule'') to increase monthly fees 
for the Exchange's MIAX Express Network Full Service MEO Ports.\3\ The 
proposed rule change was immediately effective upon filing with the 
Commission pursuant to Section 19(b)(3)(A) of the Act.\4\ The proposed 
rule change was published for comment in the Federal Register on July 
15, 2021.\5\ The Commission has received no comment letters on the 
proposed rule change. Under Section 19(b)(3)(C) of the Act,\6\ the 
Commission is hereby: (i) Temporarily suspending File Number SR-PEARL-
2021-33; and (ii) instituting proceedings to determine whether to 
approve or disapprove File Number SR-PEARL-2021-33.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ ``MEO Interface'' or ``MEO'' means a binary order interface 
for certain order types as set forth in Rule 516 into the MIAX Pearl 
System. See Notice, infra note 5, at 37347 n.3.
    \4\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take 
effect upon filing with the Commission if it is designated by the 
exchange as ``establishing or changing a due, fee, or other charge 
imposed by the self-regulatory organization on any person, whether 
or not the person is a member of the self-regulatory organization.'' 
15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ See Securities Exchange Act Release No. 92365 (July 9, 
2021), 86 FR 37347 (``Notice'').
    \6\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Change

    MIAX Pearl proposes to increase the monthly fees for Full Service 
MEO Ports, which fee increases became effective July 1, 2021.\7\ The 
Exchange states that Full Service MEO Ports are used for by options 
Members to submit

[[Page 49361]]

quotes and orders and allow for a higher throughput rates than other 
ports offered by the Exchange, such as FIX ports.\8\
---------------------------------------------------------------------------

    \7\ See Notice, supra note 5, at 37347.
    \8\ See Notice, supra note 5, at 37349.
---------------------------------------------------------------------------

    Full Service MEO Ports are of two types: Bulk and Single.\9\ An 
options Member using Full Service MEO Ports may be allocated up to two 
(2) Full Service MEO Ports for each Matching Engine to which it 
connects (two Bulk, two Single, or one of each), and the monthly fee 
for Full Service MEO Port use will be determined by volume, according 
to tiered schedules.\10\ More specifically, the Exchange assesses 
Members Full Service MEO Port fees based upon the monthly total volume 
executed by a Member and its Affiliates \11\ on the Exchange across all 
origin types, not including Excluded Contracts,\12\ as compared to the 
Total Consolidated Volume (``TCV''),\13\ in all MIAX Pearl-listed 
options, with separate schedules for Bulk and Single.
---------------------------------------------------------------------------

    \9\ See Notice, supra note 5, at 37348 n. 5-6. ``Full Service 
MEO Port--Bulk'' means an MEO port that supports all MEO input 
message types and binary bulk order entry ``Full Service MEO Port--
Single'' means an MEO port that supports all MEO input message types 
and binary order entry on a single order-by-order basis, but not 
bulk orders.
    \10\ See Notice, supra note 5, at 37348. The Exchange states 
that it currently has twelve matching engines, which means that for 
a single monthly fee, a Member may receive up to twenty-four Full 
Service MEO Ports for that single fee. Id.
    \11\ ``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). See Notice, supra note 5, at 37348 n.11.
    \12\ ``Excluded Contracts'' means any contracts routed to an 
away market for execution. See Notice, supra note 5, at 37348 n.12.
    \13\ ``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 of time in which the Exchange experiences 
an Exchange System Disruption (solely in the option classes of the 
affected Matching Engine). See Notice, supra note 5, at 37348 n.13.
---------------------------------------------------------------------------

    The Exchange proposes to increase fees for all Full Service MEO 
Port as follows:
    For Full Service MEO Ports--Bulk, if the Member's relevant monthly 
volume falls within the parameters of:
     Tier 1 (up to 0.30% TCV): The monthly fee would increase 
from $3,000 to $5,000;
     Tier 2 (above 0.30%, up to 0.60% TCV): The monthly fee 
would increase from $4,500 to $7,500; and
     Tier 3 (above 0.60% TCV): The monthly fee would increase 
from $5,000 to $10,000.
    For Full Service MEO Ports--Single, if the Member's relevant 
monthly volume falls within the parameters of:
     Tier 1 (up to 0.30% TCV): The monthly fee would increase 
from $2,000 to $2,500;
     Tier 2 (above 0.30%, up to 0.60% TCV): The monthly fee 
would increase from $3,375 to $3,500; and
     Tier 3 (above 0.60% TCV): The monthly fee would increase 
from $3,750 to $4,500.

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\14\ at any time within 
60 days of the date of filing of an immediately effective proposed rule 
change pursuant to Section 19(b)(1) of the Act,\15\ the Commission 
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') if it appears to the Commission that 
such action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act. As discussed below, the Commission believes a temporary 
suspension of the proposed rule change is necessary and appropriate to 
allow for additional analysis of the proposed rule change's consistency 
with the Act and the rules thereunder.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(C).
    \15\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    In support of the proposed fee increases, the Exchange argues 
principally that the fees for Full Service MEO Ports are constrained by 
competitive forces, and that this is supported by their revenue and 
cost analysis. In particular, the Exchange states that there are 16 
options markets that are ``highly competitive'' and that reliance on 
competitive markets is an appropriate means to ensure equitable and 
reasonable prices.\16\ In further support of its argument that 
competitive forces constrain its proposed Full Service MEO Port fee 
increases, the Exchange states that there is no regulatory requirement 
that any market participant connect to the Exchange or that any market 
participant connect at any specific connection speed.\17\ The Exchange 
further states no options market participant is required by rule, 
regulation, or competitive forces to be a Member of the Exchange, which 
the Exchange believes is illustrated by the fact that it is unaware of 
any one options exchange whose membership includes every registered 
broker-dealer.\18\
---------------------------------------------------------------------------

    \16\ See id. at 37350. The Exchange adds that the Exchange had 
combined market share of 5.31% in June 2021 and it is aware of no 
evidence that this provides the Exchange with anti-competitive 
pricing power.
    \17\ See id. at 37354.
    \18\ See Notice, supra note 5, at 37454-55.
---------------------------------------------------------------------------

    The Exchange also states that the proposed fees are designed to 
recover a portion of the costs associated with directly accessing the 
Exchange and that the proposed increases are reasonable and appropriate 
to allow the Exchange to offset expenses the Exchange has and will 
incur in relation to providing the Full Service MEO Ports.\19\ The 
Exchange provides an analysis of its revenues, costs, and profitability 
associated with these fees, which it references as ``Proposed Access 
Fees.'' The Exchange states that this analysis reflects an extensive 
cost review in which the Exchange analyzed every expense item in the 
Exchange's general expense ledger to determine whether each such 
expense relates to the Proposed Access Fees, and, if such expense did 
so relate, what portion (or percentage) of such expense actually 
supports the access services.\20\ The Exchange states that this 
analysis shows fee increase will not result in excessive pricing or 
supra-competitive profits when compared to the Exchange's annual 
expense associated with providing the MEO Ports versus the annual 
revenue for the MEO Ports.\21\
---------------------------------------------------------------------------

    \19\ See Notice, supra note 5, at 37349.
    \20\ See Notice, supra note 5, at 37350. The Exchange also 
states that no expense amount is allocated twice and the expenses 
only cover the MIAX Pearl options market. Id. at 37354. Expenses 
associated with the MIAX Pearl equities market are accounted for 
separately and are not within the scope of this filing. See id. at 
37384.
    \21\ See Notice, supra note 5, at 37350.
---------------------------------------------------------------------------

    The Exchange states that for 2021, the total annual expense for 
providing the access services associated with the Proposed Access Fees 
for the Exchange is projected to be approximately $897,084.\22\ The 
$897,084 in projected total annual expense is comprised of the 
following, all of which the Exchange states are directly related to the 
access services associated with the Proposed Access Fees: (1) Third-
party expense, relating to fees paid by the Exchange to third-parties 
for certain products and services; and (2) internal expense, relating 
to the internal costs of the Exchange to provide the services 
associated with the Proposed Access Fees. The Exchange states that the 
$897,084 in projected total annual expense is directly related to the 
access services associated with the Proposed Access Fees, and not any 
other product or service offered by the Exchange.
---------------------------------------------------------------------------

    \22\ See Notice, supra note 5, at 37351.
---------------------------------------------------------------------------

    The Exchange states that the total third-party expense, relating to 
fees paid by the Exchange to third-parties for

[[Page 49362]]

certain products and services for the Exchange to be able to provide 
the access services associated with the Proposed Access Fees is 
projected to be $40,166 for 2021.\23\ The Exchange represents that it 
determined whether third-party expenses related to the access services 
associated with the Proposed Access Fees, and, if such expense did so 
relate, determined what portion (or percentage) of such expense 
represents the cost to the Exchange to provide access services 
associated with the Proposed Access Fees. This includes allocating a 
portion of fees paid to: (1) Equinix, for data center services 
(approximately 1.80% of the Exchange's total applicable Equinix 
expense); (2) Zayo Group Holdings, Inc. for network services 
(approximately 0.90%); (3) Secure Financial Transaction Infrastructure 
and various other services providers (approximately 0.90%); and (4) 
various other hardware and software providers (approximately 0.90%).
---------------------------------------------------------------------------

    \23\ See Notice, supra note 5, at 37351-52.
---------------------------------------------------------------------------

    In addition, the Exchange states that the total internal expense, 
relating to the internal costs of the Exchange to provide the access 
services associated with the Proposed Access Fees, is projected to be 
$856,918 for 2021.\24\ The Exchange represents that: (1) The Exchange's 
employee compensation and benefits expense relating to providing the 
access services associated with the Proposed Access Fees is projected 
to be $783,513, which is a portion of the Exchange's total projected 
expense of $9,163,894 for employee compensation and benefits 
(approximately 8.55%); (2) the Exchange's depreciation and amortization 
expense relating to providing the access services associated with the 
Proposed Access Fees is projected to be $64,456, which is a portion of 
the Exchange's total projected expense of $2,864,716 for depreciation 
and amortization (approximately 2.25%); \25\ and (3) the Exchange's 
occupancy expense relating to providing the access services associated 
with the Proposed Access Fees is projected to be $8,949, which is a 
portion of the Exchange's total projected expense of $497,180 for 
occupancy (approximately 1.80%).
---------------------------------------------------------------------------

    \24\ See Notice, supra note 5, at 37352-53.
    \25\ The Exchange states that the total projected expense of 
$2,864,716 for depreciation and amortization differs from the 
projected expense of depreciation and amortization projected by the 
Exchange in a different filing (SR-PEARL-2021-32) because the 
Exchange factors in the depreciation of its own internally developed 
software when assessing costs for Full Service MEO Ports, resulting 
in a higher depreciation expense number in this filing. See Notice, 
supra note 5, at 37353, n.30.
---------------------------------------------------------------------------

    The Exchange states that this cost and revenue analysis shows that 
the proposed rule change will not result in excessive pricing or supra-
competitive profit.\26\ The Exchange projects that, on a fully-
annualized basis, the Proposed Access Fees will have an expense of 
$897,084 per annum and a projected revenue of $1,467,000 per year, 
resulting in a projected profit margin of 39% ($1,467,000 in projected 
revenue minus $897,084 in projected expense = $578,916 profit per 
year). The Exchange states that this estimated profit margin for Full 
Service MEO Port fees is well below the operating profit margins of 
other competing exchanges based on financial statements filed by them 
in 2019 Form 1 amendments.\27\ The Exchange also states that its 
proposed increased Full Service MEO Port fees are in line with, or 
cheaper than, the similar port fees or similar membership fees charged 
by other options exchanges.\28\
---------------------------------------------------------------------------

    \26\ See Notice, supra note 5, at 37353.
    \27\ See Notice, supra note 5, at 37354. The Exchange states 
that Nasdaq ISE, LLC's operating profit margin for 2019 was 83% and 
Nasdaq PHLX LLC's operating profit margin for 2019 was 67%.
    \28\ See Notice, supra note 5, at 37349. See also Notice, supra 
note 5, at 37348 n.9.
---------------------------------------------------------------------------

    The Exchange further states that its proposed fees are reasonable, 
equitably allocated and not unfairly discriminatory because the 
Exchange, and its affiliates Miami International Securities Exchange, 
LLC (``MIAX'') and MIAX Emerald, LLC (``MIAX Emerald''), are still 
recouping the initial expenditures from building out their systems 
while ``legacy'' exchanges have already paid for and built their 
systems.\29\ The Exchange also notes that its affiliates, MIAX and MIAX 
Emerald, also charge fees for their high throughput, low latency MEI 
Ports in a similar fashion as the Exchange charges for its MEO 
Ports.\30\ Furthermore, the Exchange notes that it has historically 
undercharged for Full Service MEO Ports as compared to other options 
exchanges and the proposed monthly fee increases for Full Service MEO 
Ports would bring the Exchange's fees more in line with that of other 
options exchanges, while maintaining a competitive fee structure for 
Full Service MEO Ports.\31\
---------------------------------------------------------------------------

    \29\ See Notice, supra note 5, at 37354.
    \30\ See MIAX Fee Schedule, Section (5)(d)(ii); MIAX Emerald Fee 
Schedule, Section (5)(d)(ii).
    \31\ See Notice, supra note 5, at 37349.
---------------------------------------------------------------------------

    The Exchange states that the proposed fees are equitably allocated, 
not unfairly discriminatory, and do not impose an unnecessary or 
inappropriate burden on competition because the Proposed Access Fees do 
not favor certain categories of market participants,\32\ the allocation 
of the Proposed Access Fees reflects the network resources consumed by 
the various size of the market participants, with the lowest bandwidth 
consuming members paying the least, and the highest bandwidth consuming 
paying the most; \33\ and options market participants are not forced to 
connect to (and purchase MEO Ports from) all options exchanges.\34\
---------------------------------------------------------------------------

    \32\ See id. at 37354.
    \33\ See Notice, supra note 5, at 37355.
    \34\ For a more detailed description of the Exchange's 
justifications for the proposed rule change, see Notice, supra note 
5, at 37349-55.
---------------------------------------------------------------------------

    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\35\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements.'' \36\
---------------------------------------------------------------------------

    \35\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \36\ Id.
---------------------------------------------------------------------------

    Section 6 of the Act, including Sections 6(b)(4), (5), and (8), 
require the rules of an exchange to (1) provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \37\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \38\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\39\
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78f(b)(4).
    \38\ 15 U.S.C. 78f(b)(5).
    \39\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In temporarily suspending the Exchange's fee change, the Commission 
intends to further consider whether the proposal to increase fees for 
the Exchange's Full Service MEO Ports is consistent with the statutory 
requirements applicable to a national securities exchange under the 
Act. In particular, the Commission will consider whether the proposed 
rule change satisfies the standards under the Act and the rules 
thereunder requiring, among other things, that an exchange's rules 
provide for the equitable allocation of reasonable fees among members, 
issuers, and other persons

[[Page 49363]]

using its facilities; not permit unfair discrimination between 
customers, issuers, brokers or dealers; and do not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.\40\
---------------------------------------------------------------------------

    \40\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------

    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.\41\
---------------------------------------------------------------------------

    \41\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    In addition to temporarily suspending the proposal, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\42\ and 19(b)(2)(B) of the Act \43\ to determine whether the proposed 
rule change should be approved or disapproved. Institution of 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, the 
Commission seeks and encourages interested persons to provide 
additional comment on the proposed rule change to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule change.
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \43\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\44\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also 
provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
See id. The time for conclusion of the proceedings may be extended 
for up to 60 days if the Commission finds good cause for such 
extension and publishes its reasons for so finding, or if the 
exchange consents to the longer period. See id.
---------------------------------------------------------------------------

     Whether the Exchange has demonstrated how the proposal is 
consistent with Section 6(b)(4) of the Act, which requires that the 
rules of a national securities exchange ``provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities;'' \45\
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

     Whether the Exchange has demonstrated how the proposal is 
consistent with Section 6(b)(5) of the Act, which requires, among other 
things, that the rules of a national securities exchange be ``designed 
to perfect the operation of a free and open market and a national 
market system'' and ``protect investors and the public interest,'' and 
not be ``designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers;'' \46\ and
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

     Whether the Exchange has demonstrated how the proposal is 
consistent with Section 6(b)(8) of the Act, which requires that the 
rules of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of [the Act].'' \47\
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    As discussed in Section III above, the Exchange makes various 
arguments in support of the proposal. The Commission believes that 
there are questions as to whether the Exchange has provided sufficient 
information to demonstrate that the proposal to increase Full Service 
MEO Port fees is consistent with the Act and the rules thereunder.
    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule change.'' \48\ The description of a proposed 
rule change, its purpose and operation, its effect, and a legal 
analysis of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative Commission 
finding,\49\ and any failure of an SRO to provide this information may 
result in the Commission not having a sufficient basis to make an 
affirmative finding that a proposed rule change is consistent with the 
Act and the applicable rules and regulations.\50\
---------------------------------------------------------------------------

    \48\ 17 CFR 201.700(b)(3).
    \49\ See id.
    \50\ See id.
---------------------------------------------------------------------------

    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposal is consistent with the Act, specifically, with its 
requirements that the rules of a national securities exchange provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its members, issuers, and other persons using its 
facilities; are designed to perfect the operation of a free and open 
market and a national market system, and to protect investors and the 
public interest; are not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers; and do not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act; \51\ as well as any other 
provision of the Act, or the rules and regulations thereunder.
---------------------------------------------------------------------------

    \51\ See 15 U.S.C. 78f(b)(4), (5), and (8).
---------------------------------------------------------------------------

V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by September 23, 2021. 
Rebuttal comments should be submitted by October 7, 2021. Although 
there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of views, 
data, and arguments, the Commission will consider, pursuant to Rule 
19b-4, any request for an opportunity to make an oral presentation.\52\
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    \52\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
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    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rule change, including whether the 
proposal 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 No. SR-PEARL-2021-33 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-PEARL-2021-33. This file 
number should be included on the

[[Page 49364]]

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-2021-33 and should be submitted on or before September 23, 2021. 
Rebuttal comments should be submitted by October 7, 2021.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\53\ that File Number SR-PEARL-2021-33 be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \53\ 15 U.S.C. 78s(b)(3)(C).
    \54\ 17 CFR 200.30-3(a)(57) and (58).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\54\
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021-18949 Filed 9-1-21; 8:45 am]
BILLING CODE 8011-01-P
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