Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Trading Permit Fees for Market Makers in the MIAX PEARL Options Fee Schedule, 71704-71712 [2022-25471]
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Federal Register / Vol. 87, No. 225 / Wednesday, November 23, 2022 / Notices
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BILLING CODE 6325–66–P
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Trading Permit
Fees for Market Makers in the MIAX
PEARL Options Fee Schedule
November 17, 2022.
lotter on DSK11XQN23PROD with NOTICES1
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 November
15, 2022, 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 Options Fee
Schedule (the ‘‘Fee Schedule’’) to
amend its monthly Trading Permit 3 fees
for Market Makers.4
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The term ‘‘Trading Permit’’ means a permit
issued by the Exchange that confers the ability to
transact on the Exchange. See Exchange Rule 100.
4 The term ‘‘Market Maker’’ or ‘‘MM’’ means a
Member registered with the Exchange for the
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In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1. Purpose
[Release No. 34–96338; File No. SR–
PEARL–2022–51]
2 17
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
1 15
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.
The Exchange proposes to amend the
Fee Schedule to amend the amount and
calculation of the monthly Trading
Permit fees for Market Makers.
Currently, the Exchange assesses
Trading Permit fees based upon the
monthly total volume executed by the
Member 5 and its Affiliates 6 on 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 the Exchange Rules. See the Definitions Section
of the Fee Schedule and Exchange Rule 100.
5 The term ‘‘Member’’ means an individual or
organization that is registered with the Exchange
pursuant to Chapter II of 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 Exchange Rule 100 and the
Definitions Section of the Fee Schedule.
6 ‘‘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 following process. A MIAX Pearl
Market Maker appoints an EEM and an EEM
appoints a MIAX Pearl Market Maker, for the
purposes of the Fee Schedule, by each completing
and sending an executed Volume Aggregation
Request Form by email to membership@
miaxoptions.com no later than 2 business days
prior to the first business day of the month in which
the designation is to become effective. Transmittal
of a validly completed and executed form to the
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Exchange across all origin types, not
including Excluded Contracts,7 as
compared to the Total Consolidated
Volume (‘‘TCV’’) 8 in all MIAX Pearllisted options. This Trading Permit fee
structure has been in place since 2018.9
The Exchange adopted a tier-based fee
structure based upon the volume-based
tiers detailed in the definition of ‘‘NonTransaction Fees Volume-Based
Tiers’’ 10 in the Definitions section of the
Fee Schedule. The Exchange also
assesses Trading Permit fees based upon
the type of interface used by the
Member to connect to the Exchange—
the FIX Interface 11 and/or the MEO
Interface.12
The Exchange now proposes to amend
the calculation and amount of Trading
Permit fees for Market Makers by
moving away from the above-described
volume tier-based fee structure to
harmonize the Trading Permit fee
structure for Market Makers with that of
the Exchange’s affiliates, Miami
International Securities Exchange, LLC
(‘‘MIAX’’) and MIAX Emerald, LLC
(‘‘MIAX Emerald’’).13 The Exchange also
notes that this proposal is substantially
Exchange along with the Exchange’s
acknowledgement of the effective designation to
each of the Market Maker and EEM will be viewed
as acceptance of the appointment. The Exchange
will only recognize one designation per Member. A
Member may make a designation not more than
once every 12 months (from the date of its most
recent designation), which designation shall remain
in effect unless or until the Exchange receives
written notice submitted 2 business days prior to
the first business day of the month from either
Member indicating that the appointment has been
terminated. Designations will become operative on
the first business day of the effective month and
may not be terminated prior to the end of the
month. Execution data and reports will be provided
to both parties. See the Definitions Section of the
Fee Schedule.
7 ‘‘Excluded Contracts’’ means any contracts
routed to an away market for execution. See the
Definitions Section of the Fee Schedule.
8 ‘‘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 the Definitions
Section of the Fee Schedule.
9 See Securities Exchange Act Release No. 82867
(March 13, 2018), 83 FR 12044 (March 19, 2018)
(SR–PEARL–2018–07).
10 See the Definitions Section of the Fee Schedule
for the monthly volume thresholds associated with
each Tier.
11 ‘‘FIX Interface’’ means the Financial
Information Exchange interface for certain order
types as set forth in Exchange Rule 516. See the
Definitions Section of the Fee Schedule and
Exchange Rule 100.
12 ‘‘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 the
Definitions Section of the Fee Schedule and
Exchange Rule 100.
13 See MIAX Fee Schedule, Section 3)b) and
MIAX Emerald Fee Schedule, Section 3)b).
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Federal Register / Vol. 87, No. 225 / Wednesday, November 23, 2022 / Notices
based on the recent filing by BOX
Exchange LLC (‘‘BOX’’) to adopt
monthly Electronic Market Maker
Trading Permit Fees based on options
classes assigned, which filing has since
passed the 60-day suspension
deadline.14
The Exchange proposes that the
amount of the monthly Trading Permit
fees for Market Makers would be based
on the lesser of either the per class
traded or percentage of total national
average daily volume (‘‘ADV’’)
measurement based on classes traded by
volume. The amount of monthly Market
Maker Trading Permit fee would be
based upon the number of classes in
which the Market Maker was registered
to quote on any given day within the
calendar month, or upon the class
volume percentages.
Specifically, the Exchange proposes to
adopt the following Trading Permit fees
for Market Makers: (i) $3,000 for Market
Maker registrations in up to 10 option
classes or up to 20% of option classes
by national ADV; (ii) $5,000 for Market
Maker registrations in up to 40 option
classes or up to 35% of option classes
by ADV; (iii) $7,000 for Market Maker
registrations in up to 100 option classes
or up to 50% of option classes by ADV;
and (iv) $9,000 for Market Maker
registrations in over 100 option classes
or over 50% of option classes by ADV
up to all option classes listed on MIAX
Pearl. For example, if Market Maker 1
elects to quote the top 40 option classes
which consist of 58% of the total
national average daily volume in the
prior calendar quarter, the Exchange
would assess $5,000 to Market Maker 1
for the month which is the lesser of ‘up
to 40 classes’ and ‘over 50% of classes
by volume up to all classes listed on
MIAX Pearl’. If Market Maker 2 elects to
quote the bottom 1000 option classes
which consist of 10% of the total
national average daily volume in the
prior quarter, the Exchange would
assess $3,000 to Market Maker 2 for the
month which is the lesser of ‘over 100
classes’ and ‘up to 20% of classes by
volume.’ The Exchange notes that the
proposed tiers (ranging from $3,000 to
$9,000) are lower than the tiers recently
approved by the Commission in BOX’s
filing to adopt market maker trading
permit fees (ranging from $4,000 to
$10,000) for similar per class tier
thresholds.15
With the proposed changes, a Market
Maker would be determined to be
14 See Securities Exchange Act Release No. 94894
(May 11, 2022), 87 FR 29987 (May 17, 2022) (SR–
BOX–2022–17); see also BOX Exchange LLC
(‘‘BOX’’) Fee Schedule, Section I.C.
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16:45 Nov 22, 2022
Jkt 259001
registered in a class if that Market Maker
has been registered in one or more series
in that class.16 The Exchange will assess
MIAX Pearl Market Makers the monthly
Market Maker Trading Permit fee based
on the greatest number of classes listed
on MIAX Pearl that the MIAX Pearl
Market Maker registered to quote in on
any given day within a calendar month.
Therefore, with the proposed changes to
the calculation of Market Maker Trading
Permit fees, the Exchange’s Market
Makers would be encouraged to quote in
more series in each class they are
registered in because each additional
series in that class would not count
against their total classes for purposes of
the Trading Permit fee tiers. The class
volume percentage is based on the total
national ADV in classes listed on MIAX
Pearl in the prior calendar quarter.
Newly listed option classes are
excluded from the calculation of the
monthly Market Maker Trading Permit
fee until the calendar quarter following
their listing, at which time the newly
listed option classes will be included in
both the per class count and the
percentage of total national ADV.
The Exchange also proposes to adopt
an alternative lower Trading Permit fee
for Market Makers who fall within the
2nd, 3rd and 4th levels of the Market
Maker Trading Permit fee table: (i)
Market Maker registrations in up to 40
option classes or up to 35% of option
classes by volume; (ii) Market Maker
registrations in up to 100 option classes
or up to 50% of option classes by
volume; and (iii) Market Maker
registrations in over 100 option classes
or over 50% of option classes by volume
up to all option classes listed on MIAX
Pearl. In particular, the Exchange
proposes to adopt footnote ‘‘**’’
following the Market Maker Trading
Permit fee table for these Monthly
Trading Permit tier levels. New
proposed footnote ‘‘**’’ will provide
that if the Market Maker’s total monthly
executed volume during the relevant
month is less than 0.040% of the total
monthly TCV for MIAX Pearl–listed
option classes for that month, then the
fee will be $3,500 instead of the fee
otherwise applicable to such level.
The purpose of the alternative lower
fee designated in proposed footnote
‘‘**’’ is to provide a lower fixed cost to
those Market Makers who are willing to
quote the entire Exchange market (or
substantial amount of the Exchange
market), as objectively measured by
15 Id.
16 Pursuant
to Exchange Rule 602(a), a Member
that has qualified as a Market Maker may register
to make markets in individual series of options.
PO 00000
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71705
either number of classes assigned or
national ADV, but who do not otherwise
execute a significant amount of volume
on the Exchange. The Exchange believes
that, by offering lower fixed costs to
Market Makers that execute less volume,
the Exchange will retain and attract
smaller-scale Market Makers, which are
an integral component of the option
marketplace, but have been decreasing
in number in recent years, due to
industry consolidation and lower
market maker profitability. Since these
smaller-scale Market Makers utilize less
Exchange capacity due to lower overall
volume executed, the Exchange believes
it is reasonable and equitable to offer
such Market Makers a lower fixed cost.
The Exchange notes that the Exchange’s
affiliates, MIAX and MIAX Emerald,
also provide lower Trading Permit fees
for Market Makers who quote the entire
MIAX and MIAX Emerald markets (or
substantial amount of those markets), as
objectively measured by either number
of classes assigned or national ADV, but
who do not otherwise execute a
significant amount of volume on MIAX
or MIAX Emerald.17 The Exchange also
notes that other options exchanges
assess certain of their membership fees
at different rates, based upon a
member’s participation on that
exchange (as described in the table
below), and, as such, this concept is not
new or novel. The proposed changes to
the Trading Permit fees for Market
Makers who fall within the 2nd, 3rd and
4th levels of the fee table are based upon
a business determination of current
Market Maker assignments and trading
volume.
*
*
*
*
*
As illustrated by the table below, the
Exchange notes that the proposed
Trading Permit fees for Market Makers
are in line with, or cheaper than, the
similar trading permit fees and
membership fees charged by other
options exchanges. The Exchange
believes other exchanges’ membership
and trading permit fees are useful
examples of alternative approaches to
providing and charging for membership
and provides the table for comparison
purposes only to show how the
Exchange’s proposed fees compare to
fees currently charged by other options
exchanges for similar membership and
trading permits.
17 See MIAX Fee Schedule, Section 3)b) and
MIAX Emerald Fee Schedule, Section 3)b).
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Federal Register / Vol. 87, No. 225 / Wednesday, November 23, 2022 / Notices
Exchange
Monthly membership/trading permit fee
MIAX Pearl Options (as proposed) .........
Market Maker Trading Permit fees:
—Tier 1: $3,000 for Market Maker Assignments in up to 10 option classes or up to 20% of option classes by national
ADV.
—Tier 2: $5,000 for Market Maker Assignments in up to 40 option classes or up to 35% of option classes by ADV.
—Tier 3: $7,000 for Market Maker Assignments in up to 100 option classes or up to 50% of option classes by ADV.
—Tier 4: $9,000 for Market Maker Assignments in over 100 option classes or over 50% of option classes by ADV up to all
option classes listed on MIAX Pearl.
*Discounted rate of $3,500 for Market Makers in Tiers 2, 3 and 4 if the Market Maker’s total monthly executed volume
during the relevant month is less than 0.040% of the total monthly TCV for MIAX Pearl-listed option classes for that
month.
Electronic Market Maker Trading Permit Fees:
Tier 1 (up to and including 10 classes): $4,000.
Tier 2 (up to and including 40 classes): $6,000.
Tier 3 (up to and including 100 classes): $8,000.
Tier 4 (over 100 classes): $10,000.
Options Trading Permits:
Market Makers: 1st OTP—$8,000 for up to 60 plus the bottom 45% of option issues.
2nd OTP—Additional $6,000 for up to 150 plus the bottom 45% of option issues.
3rd OTP—Additional $5,000 for up to 500 plus the bottom 45% of option issues.
4th OTP—Additional $4,000 for up to 1,100 plus the bottom 45% of option issues.
5th OTP—Additional $3,000 for all option issues.
6th—9th OTP—Additional $2,000.
10th or more OTPs—$500 for all options issues.
ATP Trading Permits:
Market Makers: $8,000 for up to 60 plus the bottom 45% of option issues.
Additional $6,000 for up to 150 plus the bottom 45% of option issues.
Additional $5,000 for up to 500 plus the bottom 45% of option issues.
Additional $4,000 for up to 1,100 plus the bottom 45% of option issues.
Additional $3,000 for all option issues.
Additional $2,000 for 6th to 9th ATPs (plus additional fee for premium products).
Additional $500 for the 10th or more ATPs.
Streaming Quote Trader (‘‘SQT’’) permit fees:
Tier 1 (up to 200 option classes): $0.00.
Tier 2 (up to 400 option classes): $2,200.
Tier 3 (up to 600 option classes): $3,200.
Tier 4 (up to 800 option classes): $4,200.
Tier 5 (up to 1,000 option classes): $5,200.
Tier 6 (up to 1,200 option classes): $6,200.
Tier 7 (all option classes): $7,200.
Remote Market Maker Organization (‘‘RMMO’’) permit fees:
Tier 1 (less than 100 option classes): $5,000.
Tier 2 (more than 100 and less than 999 option classes): $8,000.
Tier 3 (1,000 or more option classes): $11,000.
Access Fees:
Primary Market Maker: $5,000 per membership.
Competitive Market Maker: $2,500 per membership.
Electronic Trading Permit Fees:
Market Maker: $5,000.
Electronic Access Permit: $3,000.
Access Permit Fees for Market Makers: $5,000.
$500 where member has an ADV <5,000 contracts traded.
$1,000 where member has an ADV ≥5,000 contracts traded.
BOX Options Exchange LLC (‘‘BOX’’) 18
NYSE Arca, Inc. (‘‘NYSE Arca’’) 19 ..........
NYSE American, LLC (‘‘NYSE American’’) 20.
Nasdaq PHLX LLC (‘‘Nasdaq PHLX’’) 21
Nasdaq ISE LLC (‘‘Nasdaq ISE’’) 22 ........
Cboe Exchange, Inc. (‘‘Cboe’’) 23 ............
Cboe C2 Exchange, Inc. (‘‘Cboe C2’’) 24
Cboe BZX Exchange, Inc. (‘‘Cboe BZX
Options’’) 25.
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Clarifying Change
The Exchange also proposes to amend
the first table of Trading Permit fees in
18 See BOX fee schedule, Section 1.C., available
at https://boxexchange.com/assets/BOX-FeeSchedule-as-of-October-28-2022.pdf (last visited
November 15, 2022). BOX had an average daily
market share of 6.62% for the month of October
2022. See Market at a Glance, available at https://
www.miaxoptions.com/ (last visited November 15,
2022).
19 See NYSE Arca Options Fees and Charges, OTP
Trading Participant Rights, p.1, available at https://
www.nyse.com/publicdocs/nyse/markets/arcaoptions/NYSE_Arca_Options_Fee_Schedule.pdf
(last visited November 15, 2022). NYSE Arca
recently increased this Options Trading Permit Fees
approximately 45%. See Securities Exchange Act
Release No. 95142 (June 23, 2022), 87 FR 38786
(June 29, 2022) (SR–NYSEArca–2022–36). Under
the new fee structure, it effectively costs a Market
Maker $26,000 per month to trade all options issues
on NYSE Arca.
20 See NYSE American Options Fee Schedule,
Section III, Monthly Trading Permit, Rights, Floor
Access and Premium Product Fees, p. 23–24,
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Jkt 259001
available at https://www.nyse.com/publicdocs/
nyse/markets/american-options/NYSE_American_
Options_Fee_Schedule.pdf (last visited November
15, 2022). Under this fee structure, it effectively
costs a Market Maker $26,000 per month to trade
all options issues on NYSE American. NYSE
American had an average daily market share of
7.20% for the month of October 2022. See Market
at a Glance, available at https://
www.miaxoptions.com/ (last visited November 15,
2022).
21 See Nasdaq PHLX Options 7 Pricing Schedule,
Section 8. Membership Fees, available at https://
listingcenter.nasdaq.com/rulebook/phlx/rules/
Phlx%20Options%207 (last visited November 15,
2022).
22 See Nasdaq ISE Options 7 Pricing Schedule,
Section 8.A. Access Services, available at https://
listingcenter.nasdaq.com/rulebook/ise/rules/
ISE%20Options%207 (last visited November 15,
2022). Nasdaq ISE had an average daily market
share of 6.41% for the month of October 2022. See
Market at a Glance, available at https://
www.miaxoptions.com/ (last visited November 15,
2022).
23 See Cboe Fee Schedule, Electronic Trading
Permit Fees, available at https://cdn.cboe.com/
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Fmt 4703
Sfmt 4703
Section 3)b) of the Fee Schedule to
provide additional clarity. The
Exchange has two categories of
Members, Market Makers and Electronic
Exchange Members 26 (‘‘EEMs’’). The
resources/membership/Cboe_FeeSchedule.pdf (last
visited November 15, 2022).
24 See Cboe C2 Fee Schedule, Access Fees,
available at https://www.cboe.com/us/options/
membership/fee_schedule/ctwo/ (last visited
November 15, 2022). Cboe C2 had an average daily
market share of 4.77% for the month of October
2022. See Market at a Glance, available at https://
www.miaxoptions.com/ (last visited November 15,
2022).
25 See ‘‘Membership Fees’’ section of the Cboe
BZX Options Fee Schedule, available at https://
www.cboe.com/us/options/membership/fee_
schedule/bzx (last visited November 15, 2022). The
Exchange understands Cboe BZX Options charges
the same Membership Fee to all of its Options
Members.
26 The term ‘‘Electronic Exchange Member’’ or
‘‘EEM’’ means the holder of a Trading Permit who
is a Member representing as agent Public Customer
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Federal Register / Vol. 87, No. 225 / Wednesday, November 23, 2022 / Notices
Exchange, therefore, proposes to replace
the word ‘‘Member’’ with ‘‘EEM’’ under
the heading ‘‘Type of Trading Permit’’
in the table of Trading Permit fees that
are based on type of interface used, FIX
or MEO. The purpose of this change is
to clarify that the first table of Trading
Permit fees will now be applicable only
to EEMs since the Exchange proposes
herein to provide a separate table
describing the new calculation and
amount of Trading Permit fees for
Market Makers.
History and Implementation
The Exchange notes that it previously
filed similar proposals to amend the
amount and calculation of Trading
Permit fees for Market Makers, which
filings contained other changes to the
Exchange’s Trading Permit fees for
EEMs. The Exchange has withdrawn
those filings and replaced them with the
current filing.27 The Exchange
previously filed this proposal on
November 7, 2022.28 On November 15,
2022, the Exchange withdrew SR–
PEARL–2022–49 and replaced it with
this filing.
The proposed rule change is
immediately effective.
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2. Statutory Basis
The Exchange believes that the
proposal is consistent with the
requirements of Section 6(b) of the Act,
in general, and Section 6(b)(4) and
6(b)(5) of the Act,29 in particular, in that
it provides for the equitable allocation
of reasonable dues, fees, and other
charges among Exchange Members and
other persons using its facilities and
does not unfairly discriminate between
customers, issuers, brokers or dealers.
The Exchange commenced operations
in February 2017 30 and adopted its
initial fee schedule that waived fees for
Trading Permits to trade on the
Exchange.31 Although trading permit
Orders or Non-Customer Orders on the Exchange
and those non-Market Maker Members conducting
proprietary trading. Electronic Exchange Members
are deemed ‘‘members’’ under the Exchange Act.
See the Definitions Section of the Fee Schedule and
Exchange Rule 100.
27 See SR–PEARL–2022–37 (withdrawn without
being noticed by the Commission) and Securities
Exchange Act Release No. 95780 (September 15,
2022), 87 FR 57732 (September 21, 2022) (SR–
PEARL–2022–39) (withdrawn on November 7,
2022).
28 See SR–PEARL–2022–49 (withdrawn without
being noticed by the Commission).
29 15 U.S.C. 78f(b)(4) and (5).
30 See MIAX PEARL Successfully Launches
Trading Operations, dated February 6, 2017,
available at https://www.miaxoptions.com/sites/
default/files/alert-files/MIAX_Press_Release_
02062017.pdf.
31 See Securities Exchange Act Release No. 80061
(February 17, 2017), 82 FR 11676 (February 24,
2017) (SR–PEARL–2017–10).
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16:45 Nov 22, 2022
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fees were waived, an initial fee structure
was put in place to communicate the
Exchange’s intent to charge trading
permit fees in the future. As a new
exchange entrant, the Exchange chose to
offer Trading Permits free of charge to
encourage market participants to trade
on the Exchange and experience, among
things, the quality of the Exchange’s
technology and trading functionality.
This practice is not uncommon. New
exchanges often do not charge fees or
charge lower fees for certain services
such as memberships/trading permits to
attract order flow to an exchange, and
later amend their fees to reflect the true
value of those services, absorbing all
costs to provide those services in the
meantime. Allowing new exchange
entrants time to build and sustain
market share through various pricing
incentives before increasing nontransaction fees encourages market entry
and promotes competition. It also
enables new exchanges to mature their
markets and allow market participants
to trade on the new exchanges without
fees serving as a potential barrier to
attracting memberships and order
flow.32
Later in 2018, as the Exchange’s
market share increased,33 the Exchange
adopted nominal fees for Trading
Permits along with a tiered-volume
based fee credit, known as the Trading
Permit Fee Credit, and a Monthly
32 See Securities Exchange Act Release No. 94894
(May 11, 2022), 87 FR 29987 (May 17, 2022) (SR–
BOX–2022–17) (stating, ‘‘[t]he Exchange established
this lower (when compared to other options
exchanges in the industry) Participant Fee in order
to encourage market participants to become
Participants of BOX. . .’’). See also Securities
Exchange Act Release No. 90076 (October 2, 2020),
85 FR 63620 (October 8, 2020) (SR–MEMX–2020–
10) (‘‘MEMX Membership Fee Proposal’’)
(proposing to adopt the initial fee schedule and
stating that ‘‘[u]nder the initial proposed Fee
Schedule, the Exchange proposes to make clear that
it does not charge any fees for membership, market
data products, physical connectivity or application
sessions.’’). MEMX has seen its market share
increase and recently proposed to adopt a
membership fee and fees for connectivity. See
Securities Exchange Act Release Nos. 93927
(January 7, 2022), 87 FR 2191 (January 13, 2022)
(SR–MEMX–2021–19) (proposing to adopt
membership fees); and 95299 (July 15, 2022), 87 FR
43563 (July 21, 2022) (SR–MEMX–2022–17)
(proposing to adopt fees for connectivity). See also,
e.g., Securities Exchange Act Release No. 88211
(February 14, 2020), 85 FR 9847 (February 20, 2020)
(SR–NYSENAT–2020–05), available at https://
www.nyse.com/publicdocs/nyse/markets/nysenational/rule-filings/filings/2020/SR-NYSENat2020-05.pdf (initiating market data fees for the
NYSE National exchange after initially setting such
fees at zero).
33 The Exchange experienced a monthly average
trading volume of 3.94% for the month of March
2018. See Market at a Glance, available at
www.miaxoptions.com (last visited (November 15,
2022).
PO 00000
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Volume Credit.34 At that time, the
Exchange chose to adopt a volume tierbased fee for Trading Permits along with
the type of interface used—FIX or
MEO—as a way to provide different
choices regarding how potential
Members could access the Exchange’s
System. This was for business and
competitive reasons and to provide
choice regarding Trading Permits and
membership that had not previously
existed. The Exchange now proposes to
move away from the above described
volume tier-based Trading Permit fee
structure and align its Market Maker
Trading Permit fees with the Trading
Permit fee structure of the Exchange’s
affiliates, MIAX and MIAX Emerald, as
well as other options exchanges by
assessing Market Makers Trading Permit
fees based on options classes assigned
or percentage of national ADV.
The Exchange recently reviewed its
current Trading Permit fees. In its
review, the Exchange determined that
the calculation and amount of Trading
Permit fees would need to be amended,
and volume tier-based Trading Permit
fees for all Member types is no longer
appropriate. Specifically, the Exchange
found that Market Makers were
benefitting from lower Trading Permit
fees while (1) consuming the most
bandwidth and resources of the
network; (2) transacting the vast
majority of the volume on the Exchange;
and (3) requiring the high touch
network support services provided by
the Exchange and its staff. The
Exchange notes that Broker Dealers,
Professional Customers, and Priority
Customers 35 take up significantly less
Exchange resources and costs. Further,
the Exchange notes that Market Makers
account for greater than 99% of message
traffic over the network, while other
non-Market Maker market participants
account for less than 1% of message
traffic over the network. Market Makers
are the primary users of the Exchange’s
high performance MEO Interface. The
Exchange’s high performance MEO
Interface (including employee support
for such interface), utilized by Market
34 See supra note 9. The Exchange notes that it
has since filed to remove these credits. See
Securities Exchange Act Release Nos. 96249
(November 7, 2022), 87 FR 68217 (November 14,
2022) (SR–PEARL–2022–47) and 96250 (November
7, 2022), 87 FR 68214 (November 14, 2022) (SR–
PEARL–2022–46).
35 The term ‘‘Priority Customer’’ means a person
or entity that (i) is not a broker or dealer in
securities, and (ii) does not place more than 390
orders in listed options per day on average during
a calendar month for its own beneficial accounts(s).
The number of orders shall be counted in
accordance with Interpretation and Policy .01 of
Exchange Rule 100. See the Definitions Section of
the Fee Schedule and Exchange Rule 100, including
Interpretation and Policy .01.
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Makers, provides unparalleled system
throughput and the capacity to handle
10.8 million quotes per second and
average round trip latency rate of
approximately 30.76 microseconds for a
single quote. Over the period from
March 2022 through May 2022, the
Exchange processed 386.1 billion
messages (99.67% of total messages
received) over the MEO Interface,
almost entirely from Market Maker
message traffic (which equals
approximately 6 billion messages per
day over that time period) (386.1 billion
messages divided 64 trading days from
March through May 2022).
The Exchange notes that while Market
Makers continue to account for a vast
majority of the increased costs and
resources placed on the Exchange and
its systems (as discussed herein), Market
Makers continue to be valuable market
participants on the exchanges as the
options market is a quote driven
industry. The Exchange recognizes the
value that Market Makers bring to the
Exchange. In fact, the Exchange
provides Market Makers transactional
volume-based discounts and rebates to
incentivize Market Makers to direct
order flow to the Exchange to obtain the
benefit of the rebate, which will in turn
benefit all market participants by
increasing liquidity on the Exchange.36
The proposed Trading Permit fees
discussed herein are meant to strike a
balance between offsetting the costs to
which Market Makers place on the
Exchange and continuing to incentivize
Market Makers to access and make
markets on the Exchange.
In its review of Trading Permit fees,
the Exchange found that since 2018,
Market Makers were paying nearly the
same Trading Permit fees as EEMs that
used the MEO Interface despite Market
Makers consuming the most resources
on the Exchange’s system and
contributing to increased costs for the
Exchange. As such, the Exchange
proposes to establish higher, separate
electronic Trading Permit fees for
Market Makers that are more aligned
with the costs and resources that Market
Makers continue to place on the
Exchange and its systems and will align
the Trading Permit fees with those of
36 For example, Market Makers may qualify for
higher Tier 3 rebates as follows: (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 when adding liquidity. This is
compared to a lower Professional Customer Tier 3
rebate of ($0.40) for options transactions in the
same classes. See Fee Schedule, Section 1)a),
footnote ‘‘✦.’’
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the majority of other options exchanges
at similar or lower rates.37
Additionally, the Exchange believes
that the proposed change will better
align the Exchange’s Trading Permit fees
with rates charged by its affiliates and
competing options exchanges in the
industry for similar Trading Permits for
such market participants. As such, the
Exchange believes the proposed Market
Maker Trading Permit fees are
reasonable in that they are lower than
comparable fees at other options
exchanges.38 Further, the Exchange
believes that the proposal is reasonably
designed to continue to compete with
other options exchanges by
incentivizing market participants to
register as Market Makers on the
Exchange in a manner than enables the
Exchange to improve its overall
competitiveness and strengthen market
quality for all market participants. As
stated above, the Exchange believes the
proposed Market Maker Trading Permit
fees are an appropriate balance between
offsetting the costs to which Market
Makers cost the Exchange and
continuing to incentivize Market Makers
to access and make a market on the
Exchange.
The proposed fees are equitable and
not unfairly discriminatory as the fees
apply equally to all Market Makers. As
such, all similarly situated Market
Makers, with the same number of
appointments, will be subject to the
same Market Maker Trading Permit fee.
With the proposed changes, a Market
Maker would be determined to be
registered in a class if that Market Maker
has been registered in one or more series
in that class. Exchange Rule 602(a)
provides that a Member that has
qualified as a Market Maker may register
to make markets in individual series of
options. The proposed tiered structure
is based on the number of options
classes the Market Maker is registered
in, not the number of series within the
options class. The Exchange believes its
proposal is fair and reasonable because
the proposed tiered structure would
encourage Market Makers to register in
more series within each options class as
each additional series in that class
would not count towards the particular
Market Maker’s overall number of
classes assigned, and cause them to
qualify for a higher tier and higher fee.
The Exchange also believes that
assessing lower fees to Market Makers
that quote in fewer classes is reasonable
and appropriate as it will allow the
Exchange to retain and attract smallerscale Market Makers, which are an
37 See
38 See
PO 00000
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id.
Frm 00140
Fmt 4703
Sfmt 4703
integral component of the options
industry marketplace. Since these
smaller Market Makers utilize less
bandwidth and capacity on the
Exchange network due to the lower
number of quoted classes, the Exchange
believes it is reasonable and appropriate
to offer such Market Makers a lower fee.
The Exchange also notes that other
options exchanges assess permit fees at
different rates, based upon a member’s
participation on that exchange,39 and, as
such, this concept is not new or novel.
Further, the Exchange believes the
proposed tiered structure of the Market
Maker Trading Permit fees is reasonable
and appropriate. Under the proposal,
Market Makers will be charged monthly
fees based on the greatest number of
classes quoted on any given trading day
in a calendar month or upon certain
class volume percentages of national
ADV. Under the proposed fee structure,
the fees increase as the number of
classes quoted by a Market Maker
increases. The Exchange believes this
structure is reasonable and not unfairly
discriminatory because the Exchange’s
system requires increased performance
and capacity in order to provide the
opportunity for Market Makers to quote
in a higher number of options classes on
the Exchange. Specifically, the more
classes that are actively quoted on the
Exchange by a Market Maker requires
increased memory for record retention,
increased bandwidth for optimized
performance, increased functionalities
on each application layer, and increased
optimization with regard to surveillance
and monitoring of such classes quoted.
As such, basing the Market Maker
Trading Permit fee on the greatest
number of classes quoted in on any
given day in a calendar month is
reasonable and appropriate when taking
into account how the increased number
of quoted classes directly impact the
costs and resources required for the
Exchange. Further, the Exchange
believes that the proposed structure is
equitable and not unfairly
discriminatory as all similarly situated
Market Makers will be charged the same
fee. The Exchange notes that options
exchanges in the industry calculate
Market Maker Permit Fees in the same
manner.40
There is no requirement, regulatory or
otherwise, that any broker-dealer
connect to and access any (or all of) the
available options exchanges. One other
exchange recently noted in a proposal to
amend their own trading permit fees
39 See supra notes 18 to 25; see also MIAX Fee
Schedule, Section 3)b) and MIAX Emerald Fee
Schedule, Section 3)b).
40 See supra notes 18 to 25.
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that of the 62 market making firms that
are registered as Market Makers across
Cboe, MIAX, and BOX, 42 firms access
only one of the three exchanges.41
Further, the Exchange and its affiliates,
MIAX and MIAX Emerald, have a total
of 47 members. Of those 47 total
members, 36 are members of all three
exchanges, four (4) are members of only
two (2) exchanges, and seven (7) are
members of only one exchange. Of those
that are currently Market Makers on the
Exchange, two (2) are not registered as
Market Makers on MIAX, four (4) are
not registered as Market Makers on
MIAX Emerald, and one (1) is not
registered as a Market Maker on MIAX
or MIAX Emerald. The above data
evidences that a Market Maker need not
be a Member of all options exchanges,
let alone the Exchange and its two
affiliates, and market makers elect to do
so based on their own business
decisions and need to directly access
each exchange’s liquidity pool. Not only
is there not an actual regulatory
requirement to connect to every options
exchange, the Exchange believes there is
also no ‘‘de facto’’ or practical
requirement as well, as further
evidenced by the market maker
membership analysis of the options
exchanges discussed above. Indeed,
Market Makers choose if and how to
access a particular exchange and
because it is a choice, the Exchange
must set reasonable pricing, otherwise
prospective market makers would not
connect and existing Market Makers
would disconnect from the Exchange.
The Exchange believes that elasticity
of demand for Exchange Membership
exists when it comes to purchasing a
Trading Permit and, as evidenced by the
data provided below, prior fee proposals
have resulted in Members terminating
their memberships.42 For example, over
the course of those prior filings, three
Members terminated their memberships
in the time since the proposed fee
increase first went into effect.
Further, other exchanges have also
experienced termination of
memberships if their members deem
permit or membership fees to be
41 See Securities Exchange Act Release No. 94894
(May 11, 2022), 87 FR 29987 (May 17, 2022) (SR–
BOX–2022–17) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change to Amend
the Fee Schedule on the BOX Options Market LLC
Facility To Adopt Electronic Market Maker Trading
Permit Fees). The Exchange believes that BOX’s
observation demonstrates that market making firms
can, and do, select which exchanges they wish to
access, and, accordingly, options exchanges must
take competitive considerations into account when
setting fees for such access.
42 See Securities Exchange Act Release No. 95419
(August 4, 2022), 87 FR 48702 (August 10, 2022)
(SR–PEARL–2022–30).
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unreasonable or excessive. For example,
the Exchange notes that a BOX
participant modified its access to BOX
in connection with the implementation
of a proposed change to BOX’s permit
fees.43 The absence of new memberships
coupled with the termination of three
memberships on the Exchange, as well
as similar membership changes on
another options exchange in relation to
a trading permit fee increase, clearly
shows that elasticity of demand exists.
The Exchange notes that there are
material costs associated with providing
the infrastructure and headcount to
fully-support access to the Exchange.
The Exchange incurs technology
expenses related to establishing and
maintaining Information Security
services, enhanced network monitoring
and customer reporting associated with
its network technology. While some of
the expense is fixed, much of the
expense is not fixed, and thus increases
as the expenses associated with access
services for Market Makers increases.
For example, new Market Makers to the
Exchange may require the purchase of
additional hardware to support those
Members as well as enhanced
monitoring and reporting of customer
performance that the Exchange
provides. Further, as the total number of
Market Makers increase, the Exchange
may need to increase its data center
footprint and consume more power,
resulting in increased costs charged by
their third-party data center provider.
Accordingly, the cost to the Exchange to
provide access to its Market Makers is
not fixed. The Exchange believes the
proposed Market Maker Trading Permit
fees are reasonable in order to offset a
portion of the costs to the Exchange
associated with providing access to
Market Makers to its quote and order
infrastructure.
The Exchange believes that charging
higher fees to Market Makers, who
connect solely through the MEO
Interface, is not unfairly discriminatory
because Market Makers continue to
account for the vast majority of network
capacity utilization and trading activity
on the Exchange and the MEO Interface
provides higher throughput and
43 According to BOX, a Market Maker on BOX
terminated its status as a Market Maker in response
to BOX’s proposed modification of Market Maker
trading permit fees. See Securities Exchange Act
Release No. 94894 (May 11, 2022), 87 FR 29987
(May 17, 2022) (SR–BOX–2022–17). BOX noted,
and the Exchange agrees, that this Market Maker’s
decision demonstrates that Market Makers can, and
do, alter their membership status if they deem
permit fees at an exchange to be unsuitable for their
business needs, thus demonstrating the competitive
environment for Market Maker permit fees and the
constraints on options exchanges when setting
Market Maker permit fees.
PO 00000
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71709
enhanced functionality compared to the
FIX Interface, justifying the increased
cost. MEO Interface users account for
the majority of expenses placed on the
Exchange’s systems. The MEO Interface
also provides additional functionality
that Market Makers using the MEO
Interface use to fulfill their market
making obligations. The Exchange offers
three time-in-force modifiers: 44 Day
Limit (‘‘Day’’), Immediate-Or-Cancel
(‘‘IOC’’), and Good ‘Til Cancelled
(‘‘GTC’’).45 While all order types are
available for use on either interface,
only the time-in-force modifiers of IOC
and Day are available on the MEO
Interface.46 Market Makers utilize the
time-in-force of Day on orders to be
posted on the MIAX Pearl Options
Book 47 and to meet Market Makers’
continuous quoting obligations under
Exchange Rule 605(d).48 The MEO
Interface allows the submission of
Cancel-Replacement orders,49 which
allow for the immediate cancellation of
a previously received order and the
replacement of that order with a new
order with new terms and conditions.50
Cancel-Replacement orders are
primarily used by Market Makers as part
of their continuous quoting obligations.
Market Makers use only the MEO
Interface due to its lower latency, higher
throughput, available time-in-force
instructions and order types that assist
them in satisfying their market making
obligations. Market Makers do not use
the FIX Interface due to the
unavailability of the above
functionality. The MEO Interface is the
44 See MIAX Pearl Options Exchange User
Manual, Section 6, Order Types, available at
https://www.miaxoptions.com/exchangefunctionality/pearl (last visited November 4, 2022).
45 See, e.g., Exchange Rule 516.
46 See preamble to Exchange Rule 516 (noting that
not all order types and modifiers are available for
use on each of the MEO Interface and the FIX
Interface). See also Section 4.1.1.2 of the MEO
Interface Specification, available at https://
www.miaxoptions.com/sites/default/files/pagefiles/MIAX_Express_Orders_MEO_v2.0.pdf
(indicating that the time-in-force instructions of IOC
and Day are available on the MEO interface).
47 The term ‘‘Book’’ means the electronic book of
buy and sell orders and quotes maintained by the
System. See Exchange Rule 100.
48 Only the time-in-force modifiers of IOC and
Day are available on the MEO Interface. See
Exchange Rule 516 (noting that not all order types
and modifiers are available for use on each of the
MEO Interface and the FIX Interface). See also
MIAX Pearl Options Exchange MEO Interface
Specification, Section 4.1.1.2, available at https://
www.miaxoptions.com/sites/default/files/pagefiles/MIAX_Express_Orders_MEO_v2.0.pdf
(indicating that the time-in-force instructions of IOC
and Day are available on the MEO interface).
49 See MIAX Pearl Options Exchange User
Manual, Section 6, Interfaces and Liquidity Types,
available at https://www.miaxoptions.com/
exchange-functionality/pearl (last visited November
4, 2022).
50 See Exchange Rule 516(d).
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more robust interface offering lower
latency and higher throughput. Market
Makers use only the MEO Interface.
The Exchange notes that while Market
Makers continue to account for a vast
majority of the increased System usage
placed on the Exchange, Market Makers
continue to be valuable market
participants on the exchanges as the
options market is a quote driven
industry. The Exchange recognizes the
value that Market Makers bring to the
Exchange. The Exchange proposes
higher, separate fees for Market Makers
that are more aligned with the costs and
resources that Market Makers continue
to place on the Exchange and its
systems.
The Exchange believes that the
proposed Market Maker Trading Permit
fees are reasonable, equitable, and not
unfairly discriminatory. The Exchange
believes that the reasonableness of its
proposed fees is demonstrated by the
very fact that such fees are in line with,
and in some cases lower than, the costs
of similar access fees at other
exchanges.51 The Exchange notes these
fees were similarly filed with the
Commission and neither suspended nor
disapproved.52 The proposed fees are
fair and equitable and not unfairly
discriminatory because they apply
equally to all Market Makers and access
to the Exchange is offered on terms that
are not unfairly discriminatory. The
Exchange designed the fee rates in order
to provide objective criteria for Market
Makers of different sizes and business
models that best matches their quoting
activity on the Exchange. The Exchange
believes that the proposed fee rates and
criteria provide an objective and flexible
framework that will encourage Market
Makers to be appointed and quote in
option classes while also equitably
allocating the fees in a reasonable
manner amongst Market Maker
appointments to account for quoting
and trading activity.
The Exchange again notes that it
operates in a highly competitive market
in which market makers can readily
favor competing venues if they deem fee
levels at a particular venue to be
excessive. In such an environment, the
Exchange must continually adjust its
fees for services and products, in
addition to order flow, to remain
competitive with other exchanges. The
Exchange believes that the proposed
changes reflect this competitive
environment.
51 See
supra notes 18 to 25.
Exchange presumes that the fees of other
exchanges are reasonable, as required by the
Exchange Act in the absence of any suspension or
disapproval order by the Commission providing
otherwise.
52 The
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16:45 Nov 22, 2022
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The Exchange again notes it is not
aware of any reason why Market Makers
could not simply drop their access to an
exchange (or not initially access an
exchange) if an exchange were to
establish prices for its non-transaction
fees that, in the determination of such
Market Maker, did not make business or
economic sense for such Market Maker
to access such exchange. The Exchange
again notes that no market makers are
required by rule, regulation, or
competitive forces to be a Market Maker
on the Exchange.
In sum, the Exchange believes the
proposed fees are reasonable and reflect
a competitive environment, as the
Exchange seeks to amend its Trading
Permit fees for Market Makers, while
still attracting Market Makers to
continue to, or seek to, access the
Exchange. The Exchange further
believes the proposed Trading Permit
fees discussed herein are an appropriate
balance between offsetting the costs to
which Market Makers cost the Exchange
and continuing to incentivize Market
Makers to access and make a market on
the Exchange.
Clarifying Change
The Exchange believes its proposal to
change the word ‘‘Member’’ to ‘‘EEM’’
under the heading ‘‘Type of Trading
Permit’’ in the table of Trading Permit
fees that are based on type of interface
used, FIX or MEO, is reasonable because
it will provide additional clarity within
the Fee Schedule. As stated above, the
Exchange has two categories of
Members, Market Makers and EEMs.
This proposed change would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because it
specify that there are separate Trading
Permit fee tables for EEMs and Market
Makers, removing the potential investor
confusion and clearly setting forth
which fee is applicable to EEMs and
which fee is applicable to Market
Makers.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
Intra-Market Competition
The Exchange believes that the
proposed Market Maker Trading Permit
fees do not place certain market
participants at a relative disadvantage to
other market participants because the
proposed fees do not favor certain
categories of market participants in a
PO 00000
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Sfmt 4703
manner that would impose a burden on
competition; rather, the fee rates are
designed in order to provide objective
criteria for Market Makers of different
sizes and business models that best
matches their quoting activity on the
Exchange. Further, the Exchange
believes that the proposed Market
Maker Trading Permit fees will not
impose a burden on intramarket
competition because, when these fees
are viewed in the context of the overall
activity on the Exchange, Market
Makers: (1) consume the most
bandwidth and resources of the
network; (2) transact the vast majority of
the volume on the Exchange; and (3)
require the high touch network support
services provided by the Exchange and
its staff, including more costly network
monitoring, reporting and support
services, resulting in a much higher cost
to the Exchange. The Exchange notes
that the majority of customer demand
comes from Market Makers, whose
transactions make up a majority of the
volume on the Exchange. Further, as
discussed herein, other Member types
(Broker Dealers, Professional Customers,
and Priority Customers) take up
significantly less Exchange resources
and costs. As such, the Exchange does
not believe charging Market Makers
higher Trading Permit fees than other
Member types will impose a burden on
intramarket competition.
The Exchange believes that the tiered
structure of the proposed Market Maker
Trading Permit fees will not impose a
burden on intramarket competition
because the tiered structure takes into
account the number of classes quoted by
each individual Market Maker. As
discussed herein, the Exchange’s system
requires increased performance and
capacity in order to provide the
opportunity for each Market Maker to
quote in a higher number of options
classes on the Exchange. Specifically,
the more classes that are actively quoted
on the Exchange by a Market Maker
requires increased memory for record
retention, increased bandwidth for
optimized performance, increased
functionalities on each application
layer, and increased optimization with
regard to surveillance and monitoring of
such classes quoted. As such, basing the
Market Maker Trading Permit fee on the
greatest number of classes quoted in on
any given day in a calendar month is
reasonable and appropriate when taking
into account how the increased number
of quoted classes directly impact the
costs and resources for the Exchange.
Inter-Market Competition
The Exchange believes the proposed
Market Maker Trading Permit fees do
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not place an undue burden on
competition on other self-regulatory
organizations that is not necessary or
appropriate. The proposed tiered
structure is based on the number of
options classes the Market Maker is
registered in, not the number of series
within the options class. The Exchange
believes its proposal would promote
intermarket competition because the
proposed tiered structure would
encourage Market Makers to register in
more series within each options class as
each additional series in that class
would not count towards the particular
Market Maker’s overall number of
classes assigned, and cause them to
qualify for a higher tier and higher fee.
This could improve the Exchange’s
market quality by encouraging Market
Makers to quote more series within an
options class without it impacting its
Trading Permit fee.
Market making firms are not forced to
become market makers on all options
exchanges. The Exchange notes that it
has far less Market Makers as compared
to the much greater number of market
makers at other options exchanges.
There are a number of large market
makers that are participants of other
options exchange but not Members of
the Exchange. The Exchange is also
unaware of any assertion that its
existing fee levels or the proposed
Market Maker Trading Permit fees
would somehow unduly impair its
competition with other options
exchanges. To the contrary, if the fees
charged are deemed too high by a
market making firm, they can simply
discontinue their membership with the
Exchange.
The Exchange operates in a highly
competitive market in which market
participants can readily favor one of the
15 competing options venues if they
deem fee levels at a particular venue to
be excessive. Based on publiclyavailable information, and excluding
index-based options, no single exchange
has more than 11–12% equity options
market share.53 Therefore, no exchange
possesses significant pricing power in
the execution of multiply-listed equity
and exchange-traded fund (‘‘ETF’’)
options order flow. For the month of
October 2022, the Exchange had a
market share of approximately 4.32% of
executed multiply-listed equity
options 54 and the Exchange believes
that the ever-shifting market share
among exchanges from month to month
demonstrates that market participants
53 See Market at a Glance, available at
www.miaxoptions.com (last visited November 15,
2022).
54 See id.
VerDate Sep<11>2014
16:45 Nov 22, 2022
Jkt 259001
can discontinue or reduce use of certain
categories of products, or shift order
flow, in response to fee changes. In such
an environment, the Exchange must
continually adjust its fees and fee
waivers to remain competitive with
other exchanges and to attract order
flow to the facility.
Finally, the Exchange notes that it
operates in a highly competitive market
in which market participants can
readily favor competing venues. In such
an environment, the Exchange must
continually review, and consider
adjusting, its fees and credits to remain
competitive with other exchanges. For
the reasons described above, the
Exchange believes that the proposed
rule change reflects this competitive
environment.
Clarifying Change
The Exchange believes its proposal to
change the word ‘‘Member’’ to ‘‘EEM’’
under the heading ‘‘Type of Trading
Permit’’ in the table of Trading Permit
fees that are based on type of interface
used, FIX or MEO, will not impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes the proposed changes
will not impose any burden on intramarket competition because the change
simply clarifies that the first table of
Trading Permit fees applies only to
EEMs. The Exchange believes the
proposed change will have not impose
any burden on intra-market competition
as the proposed change is not designed
to address any competitive issue but
rather is designed to provide clarity to
the Fee Schedule. In addition, the
Exchange does not believe the proposal
will impose any burden on inter-market
competition as the proposal does not
address any competitive issues and is
intended to protect investors by
providing further transparency and
precision for the Fee Schedule.
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,55 and Rule
19b–4(f)(2) 56 thereunder. At any time
within 60 days of the filing of the
55 15
56 17
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
Frm 00143
Fmt 4703
Sfmt 4703
71711
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–2022–51 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–2022–51. 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
E:\FR\FM\23NON1.SGM
23NON1
71712
Federal Register / Vol. 87, No. 225 / Wednesday, November 23, 2022 / Notices
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–PEARL–2022–51 and
should be submitted on or before
December 14, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.57
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022–25471 Filed 11–22–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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 the
Statutory Basis for, the Proposed Rule
Change
[Release No. 34–96341; File No. SR–
NASDAQ–2022–065]
1. Purpose
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Delay
Implementation of Pending
Amendments to Equity 4, Rules 4120,
4702 and 4703
November 17, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
14, 2022, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
lotter on DSK11XQN23PROD with NOTICES1
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to delay
implementation of pending
amendments to Equity 4, Rules 4120,
4702 and 4703 3 in light of planned
changes to the System.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
57 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 References herein to Nasdaq Rules in the 4000
Series shall mean Rules in Nasdaq Equity 4.
1 15
VerDate Sep<11>2014
16:45 Nov 22, 2022
Jkt 259001
On November 14, 2022, the Exchange
plans introduce a new upgraded version
of the OUCH Order entry protocol 4 that
will, when fully implemented, enable
the Exchange to make functional
improvements to specific Order Types 5
and Order Attributes.6 The Exchange
filed its proposal (the ‘‘Proposal’’) for
these enhancements with the SEC on
September 14, 2022, and in the Proposal
the Exchange stated that its operative
date would be November 14.7 The
Exchange recently issued a reminder of
that operative date in an Equity Trader
Alert.8 The Exchange now wishes to
inform participants that while it intends
to proceed with introducing technical
upgrades to OUCH on November 14th,
the functional upgrades affecting Order
Types, Order Attributes, and Order
4 The OUCH Order entry protocol is a proprietary
protocol that allows subscribers to quickly enter
orders into the System and receive executions.
OUCH accepts limit Orders from members, and if
there are matching Orders, they will execute. Nonmatching Orders are added to the Limit Order Book,
a database of available limit Orders, where they are
matched in price-time priority. OUCH only
provides a method for members to send Orders and
receive status updates on those Orders. See https://
www.nasdaqtrader.com/Trader.aspx?id=OUCH.
5 An ‘‘Order Type’’ is a standardized set of
instructions associated with an Order that define
how it will behave with respect to pricing,
execution, and/or posting to the Exchange Book
when submitted to Nasdaq. See Equity 1, Section
1(a)(7).
6 An ‘‘Order Attribute’’ is a further set of variable
instructions that may be associated with an Order
to further define how it will behave with respect to
pricing, execution, and/or posting to the Exchange
Book when submitted to the Exchange. See id.
7 See Securities Exchange Act Release No. 34–
95768 (September 14, 2022); 87 FR 57534
(September 20, 2022) (SR–Nasdaq–2022–051).
8 See Equity Trader Alert 2022–96 (October 26,
2022), available at https://www.nasdaqtrader.com/
TraderNews.aspx?id=%20ETA2022-96.
PO 00000
Frm 00144
Fmt 4703
Sfmt 4703
Handling and trading behavior will not
be available on that date.
By way of background, the functional
enhancements to OUCH set forth in the
Proposal will enable the Exchange to
upgrade the logic and implementation
of certain of its Order Types and Order
Attributes so that the features are more
robust, streamlined, and harmonized
across the Exchange’s Systems and
Order entry protocols. The Exchange
developed OUCH with simplicity in
mind, and therefore, it presently lacks
certain complex order handling
capabilities. By contrast, the Exchange
specifically designed its RASH Order
Entry Protocol 9 to support advanced
functionality, including discretion,
random reserve, pegging and routing.
The introduction of OUCH upgrades
will enable participants to utilize
OUCH, in addition to RASH, to enter
Order Types that require advanced
functionality. Thus, the upgrades will
not introduce new functionality, but
rather, it will offer to OUCH users
advanced functionality that already
exists for RASH users.
Specifically, the Proposal will amend
Rule 4702 pertaining to Order Types to
specify that, going forward, OUCH may
be used to enter certain Order Types
together with certain Order Attributes,
whereas now, Rule 4702 specifies that
RASH, FIX, and QIX, but not OUCH,
may be used to enter such combinations
of Order Types and Attributes.10 The
Proposal will also adjust the current
functionality of the Pegging,11
Reserve,12 and Trade Now Order
Attributes,13 as described therein, so
that they align with how OUCH, once
upgraded, will handle these Order
Attributes going forward.
Unfortunately, none of these new
OUCH functionalities set forth in the
Proposal will be available on November
14, 2022, and they may not be available
for several months thereafter due to
delays in completing the necessary
9 The RASH (Routing and Special Handling)
Order entry protocol is a proprietary protocol that
allows members to enter Orders, cancel existing
Orders and receive executions. RASH allows
participants to use advanced functionality,
including discretion, random reserve, pegging and
routing. See https://nasdaqtrader.com/content/
technicalsupport/specifications/TradingProducts/
rash_sb.pdf.
10 The planned upgrades will enable members to
utilize OUCH in additional circumstances,
including for the entry of: (1) Price to Comply and
Price to Display Orders with the Reserve Size,
Primary and Market Pegging, and Discretion Order
Attributes; (2) Non-Displayed Orders with the
Primary and Market Pegging, Midpoint Pegging (in
scenarios described in amended Rule 4703(d)), and
Discretion Order Attributes; and (3) Market Maker
Peg Orders.
11 See Rule 4703(d).
12 See Rule 4703(h).
13 See Rule 4703(m)–(n).
E:\FR\FM\23NON1.SGM
23NON1
]]>Agencies
[Federal Register Volume 87, Number 225 (Wednesday, November 23, 2022)]
[Notices]
[Pages 71704-71712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-25471]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96338; File No. SR-PEARL-2022-51]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Trading
Permit Fees for Market Makers in the MIAX PEARL Options Fee Schedule
November 17, 2022.
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 November 15, 2022, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the MIAX Pearl Options
Fee Schedule (the ``Fee Schedule'') to amend its monthly Trading Permit
\3\ fees for Market Makers.\4\
---------------------------------------------------------------------------
\3\ The term ``Trading Permit'' means a permit issued by the
Exchange that confers the ability to transact on the Exchange. See
Exchange Rule 100.
\4\ The term ``Market Maker'' or ``MM'' 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 the Exchange
Rules. See the Definitions Section of the Fee Schedule and Exchange
Rule 100.
---------------------------------------------------------------------------
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 Fee Schedule to amend the amount
and calculation of the monthly Trading Permit fees for Market Makers.
Currently, the Exchange assesses Trading Permit fees based upon the
monthly total volume executed by the Member \5\ and its Affiliates \6\
on the Exchange across all origin types, not including Excluded
Contracts,\7\ as compared to the Total Consolidated Volume (``TCV'')
\8\ in all MIAX Pearl-listed options. This Trading Permit fee structure
has been in place since 2018.\9\ The Exchange adopted a tier-based fee
structure based upon the volume-based tiers detailed in the definition
of ``Non-Transaction Fees Volume-Based Tiers'' \10\ in the Definitions
section of the Fee Schedule. The Exchange also assesses Trading Permit
fees based upon the type of interface used by the Member to connect to
the Exchange--the FIX Interface \11\ and/or the MEO Interface.\12\
---------------------------------------------------------------------------
\5\ The term ``Member'' means an individual or organization that
is registered with the Exchange pursuant to Chapter II of 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 Exchange Rule 100 and the
Definitions Section of the Fee Schedule.
\6\ ``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 following process. A MIAX Pearl Market Maker
appoints an EEM and an EEM appoints a MIAX Pearl Market Maker, for
the purposes of the Fee Schedule, by each completing and sending an
executed Volume Aggregation Request Form by email to
[email protected] no later than 2 business days prior to
the first business day of the month in which the designation is to
become effective. Transmittal of a validly completed and executed
form to the Exchange along with the Exchange's acknowledgement of
the effective designation to each of the Market Maker and EEM will
be viewed as acceptance of the appointment. The Exchange will only
recognize one designation per Member. A Member may make a
designation not more than once every 12 months (from the date of its
most recent designation), which designation shall remain in effect
unless or until the Exchange receives written notice submitted 2
business days prior to the first business day of the month from
either Member indicating that the appointment has been terminated.
Designations will become operative on the first business day of the
effective month and may not be terminated prior to the end of the
month. Execution data and reports will be provided to both parties.
See the Definitions Section of the Fee Schedule.
\7\ ``Excluded Contracts'' means any contracts routed to an away
market for execution. See the Definitions Section of the Fee
Schedule.
\8\ ``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 the Definitions Section of the Fee
Schedule.
\9\ See Securities Exchange Act Release No. 82867 (March 13,
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
\10\ See the Definitions Section of the Fee Schedule for the
monthly volume thresholds associated with each Tier.
\11\ ``FIX Interface'' means the Financial Information Exchange
interface for certain order types as set forth in Exchange Rule 516.
See the Definitions Section of the Fee Schedule and Exchange Rule
100.
\12\ ``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 the Definitions Section of the Fee Schedule and Exchange
Rule 100.
---------------------------------------------------------------------------
The Exchange now proposes to amend the calculation and amount of
Trading Permit fees for Market Makers by moving away from the above-
described volume tier-based fee structure to harmonize the Trading
Permit fee structure for Market Makers with that of the Exchange's
affiliates, Miami International Securities Exchange, LLC (``MIAX'') and
MIAX Emerald, LLC (``MIAX Emerald'').\13\ The Exchange also notes that
this proposal is substantially
[[Page 71705]]
based on the recent filing by BOX Exchange LLC (``BOX'') to adopt
monthly Electronic Market Maker Trading Permit Fees based on options
classes assigned, which filing has since passed the 60-day suspension
deadline.\14\
---------------------------------------------------------------------------
\13\ See MIAX Fee Schedule, Section 3)b) and MIAX Emerald Fee
Schedule, Section 3)b).
\14\ See Securities Exchange Act Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17); see also BOX
Exchange LLC (``BOX'') Fee Schedule, Section I.C.
---------------------------------------------------------------------------
The Exchange proposes that the amount of the monthly Trading Permit
fees for Market Makers would be based on the lesser of either the per
class traded or percentage of total national average daily volume
(``ADV'') measurement based on classes traded by volume. The amount of
monthly Market Maker Trading Permit fee would be based upon the number
of classes in which the Market Maker was registered to quote on any
given day within the calendar month, or upon the class volume
percentages.
Specifically, the Exchange proposes to adopt the following Trading
Permit fees for Market Makers: (i) $3,000 for Market Maker
registrations in up to 10 option classes or up to 20% of option classes
by national ADV; (ii) $5,000 for Market Maker registrations in up to 40
option classes or up to 35% of option classes by ADV; (iii) $7,000 for
Market Maker registrations in up to 100 option classes or up to 50% of
option classes by ADV; and (iv) $9,000 for Market Maker registrations
in over 100 option classes or over 50% of option classes by ADV up to
all option classes listed on MIAX Pearl. For example, if Market Maker 1
elects to quote the top 40 option classes which consist of 58% of the
total national average daily volume in the prior calendar quarter, the
Exchange would assess $5,000 to Market Maker 1 for the month which is
the lesser of `up to 40 classes' and `over 50% of classes by volume up
to all classes listed on MIAX Pearl'. If Market Maker 2 elects to quote
the bottom 1000 option classes which consist of 10% of the total
national average daily volume in the prior quarter, the Exchange would
assess $3,000 to Market Maker 2 for the month which is the lesser of
`over 100 classes' and `up to 20% of classes by volume.' The Exchange
notes that the proposed tiers (ranging from $3,000 to $9,000) are lower
than the tiers recently approved by the Commission in BOX's filing to
adopt market maker trading permit fees (ranging from $4,000 to $10,000)
for similar per class tier thresholds.\15\
---------------------------------------------------------------------------
\15\ Id.
---------------------------------------------------------------------------
With the proposed changes, a Market Maker would be determined to be
registered in a class if that Market Maker has been registered in one
or more series in that class.\16\ The Exchange will assess MIAX Pearl
Market Makers the monthly Market Maker Trading Permit fee based on the
greatest number of classes listed on MIAX Pearl that the MIAX Pearl
Market Maker registered to quote in on any given day within a calendar
month. Therefore, with the proposed changes to the calculation of
Market Maker Trading Permit fees, the Exchange's Market Makers would be
encouraged to quote in more series in each class they are registered in
because each additional series in that class would not count against
their total classes for purposes of the Trading Permit fee tiers. The
class volume percentage is based on the total national ADV in classes
listed on MIAX Pearl in the prior calendar quarter. Newly listed option
classes are excluded from the calculation of the monthly Market Maker
Trading Permit fee until the calendar quarter following their listing,
at which time the newly listed option classes will be included in both
the per class count and the percentage of total national ADV.
---------------------------------------------------------------------------
\16\ Pursuant to Exchange Rule 602(a), a Member that has
qualified as a Market Maker may register to make markets in
individual series of options.
---------------------------------------------------------------------------
The Exchange also proposes to adopt an alternative lower Trading
Permit fee for Market Makers who fall within the 2nd, 3rd and 4th
levels of the Market Maker Trading Permit fee table: (i) Market Maker
registrations in up to 40 option classes or up to 35% of option classes
by volume; (ii) Market Maker registrations in up to 100 option classes
or up to 50% of option classes by volume; and (iii) Market Maker
registrations in over 100 option classes or over 50% of option classes
by volume up to all option classes listed on MIAX Pearl. In particular,
the Exchange proposes to adopt footnote ``**'' following the Market
Maker Trading Permit fee table for these Monthly Trading Permit tier
levels. New proposed footnote ``**'' will provide that if the Market
Maker's total monthly executed volume during the relevant month is less
than 0.040% of the total monthly TCV for MIAX Pearl-listed option
classes for that month, then the fee will be $3,500 instead of the fee
otherwise applicable to such level.
The purpose of the alternative lower fee designated in proposed
footnote ``**'' is to provide a lower fixed cost to those Market Makers
who are willing to quote the entire Exchange market (or substantial
amount of the Exchange market), as objectively measured by either
number of classes assigned or national ADV, but who do not otherwise
execute a significant amount of volume on the Exchange. The Exchange
believes that, by offering lower fixed costs to Market Makers that
execute less volume, the Exchange will retain and attract smaller-scale
Market Makers, which are an integral component of the option
marketplace, but have been decreasing in number in recent years, due to
industry consolidation and lower market maker profitability. Since
these smaller-scale Market Makers utilize less Exchange capacity due to
lower overall volume executed, the Exchange believes it is reasonable
and equitable to offer such Market Makers a lower fixed cost. The
Exchange notes that the Exchange's affiliates, MIAX and MIAX Emerald,
also provide lower Trading Permit fees for Market Makers who quote the
entire MIAX and MIAX Emerald markets (or substantial amount of those
markets), as objectively measured by either number of classes assigned
or national ADV, but who do not otherwise execute a significant amount
of volume on MIAX or MIAX Emerald.\17\ The Exchange also notes that
other options exchanges assess certain of their membership fees at
different rates, based upon a member's participation on that exchange
(as described in the table below), and, as such, this concept is not
new or novel. The proposed changes to the Trading Permit fees for
Market Makers who fall within the 2nd, 3rd and 4th levels of the fee
table are based upon a business determination of current Market Maker
assignments and trading volume.
---------------------------------------------------------------------------
\17\ See MIAX Fee Schedule, Section 3)b) and MIAX Emerald Fee
Schedule, Section 3)b).
---------------------------------------------------------------------------
* * * * *
As illustrated by the table below, the Exchange notes that the
proposed Trading Permit fees for Market Makers are in line with, or
cheaper than, the similar trading permit fees and membership fees
charged by other options exchanges. The Exchange believes other
exchanges' membership and trading permit fees are useful examples of
alternative approaches to providing and charging for membership and
provides the table for comparison purposes only to show how the
Exchange's proposed fees compare to fees currently charged by other
options exchanges for similar membership and trading permits.
[[Page 71706]]
------------------------------------------------------------------------
Monthly membership/trading permit
Exchange fee
------------------------------------------------------------------------
MIAX Pearl Options (as proposed).. Market Maker Trading Permit fees:
--Tier 1: $3,000 for Market Maker
Assignments in up to 10 option
classes or up to 20% of option
classes by national ADV.
--Tier 2: $5,000 for Market Maker
Assignments in up to 40 option
classes or up to 35% of option
classes by ADV.
--Tier 3: $7,000 for Market Maker
Assignments in up to 100 option
classes or up to 50% of option
classes by ADV.
--Tier 4: $9,000 for Market Maker
Assignments in over 100 option
classes or over 50% of option
classes by ADV up to all option
classes listed on MIAX Pearl.
*Discounted rate of $3,500 for
Market Makers in Tiers 2, 3 and 4
if the Market Maker's total monthly
executed volume during the relevant
month is less than 0.040% of the
total monthly TCV for MIAX Pearl-
listed option classes for that
month.
BOX Options Exchange LLC (``BOX'') Electronic Market Maker Trading
\18\. Permit Fees:
Tier 1 (up to and including 10
classes): $4,000.
Tier 2 (up to and including 40
classes): $6,000.
Tier 3 (up to and including 100
classes): $8,000.
Tier 4 (over 100 classes): $10,000.
NYSE Arca, Inc. (``NYSE Arca'') Options Trading Permits:
\19\. Market Makers: 1st OTP--$8,000 for
up to 60 plus the bottom 45% of
option issues.
2nd OTP--Additional $6,000 for up to
150 plus the bottom 45% of option
issues.
3rd OTP--Additional $5,000 for up to
500 plus the bottom 45% of option
issues.
4th OTP--Additional $4,000 for up to
1,100 plus the bottom 45% of option
issues.
5th OTP--Additional $3,000 for all
option issues.
6th--9th OTP--Additional $2,000.
10th or more OTPs--$500 for all
options issues.
NYSE American, LLC (``NYSE ATP Trading Permits:
American'') \20\. Market Makers: $8,000 for up to 60
plus the bottom 45% of option
issues.
Additional $6,000 for up to 150 plus
the bottom 45% of option issues.
Additional $5,000 for up to 500 plus
the bottom 45% of option issues.
Additional $4,000 for up to 1,100
plus the bottom 45% of option
issues.
Additional $3,000 for all option
issues.
Additional $2,000 for 6th to 9th
ATPs (plus additional fee for
premium products).
Additional $500 for the 10th or more
ATPs.
Nasdaq PHLX LLC (``Nasdaq PHLX'') Streaming Quote Trader (``SQT'')
\21\. permit fees:
Tier 1 (up to 200 option classes):
$0.00.
Tier 2 (up to 400 option classes):
$2,200.
Tier 3 (up to 600 option classes):
$3,200.
Tier 4 (up to 800 option classes):
$4,200.
Tier 5 (up to 1,000 option classes):
$5,200.
Tier 6 (up to 1,200 option classes):
$6,200.
Tier 7 (all option classes): $7,200.
Remote Market Maker Organization
(``RMMO'') permit fees:
Tier 1 (less than 100 option
classes): $5,000.
Tier 2 (more than 100 and less than
999 option classes): $8,000.
Tier 3 (1,000 or more option
classes): $11,000.
Nasdaq ISE LLC (``Nasdaq ISE'') Access Fees:
\22\. Primary Market Maker: $5,000 per
membership.
Competitive Market Maker: $2,500 per
membership.
Cboe Exchange, Inc. (``Cboe'') Electronic Trading Permit Fees:
\23\. Market Maker: $5,000.
Electronic Access Permit: $3,000.
Cboe C2 Exchange, Inc. (``Cboe Access Permit Fees for Market
C2'') \24\. Makers: $5,000.
Cboe BZX Exchange, Inc. (``Cboe $500 where member has an ADV <5,000
BZX Options'') \25\. contracts traded.
$1,000 where member has an ADV
>=5,000 contracts traded.
------------------------------------------------------------------------
Clarifying Change
---------------------------------------------------------------------------
\18\ See BOX fee schedule, Section 1.C., available at https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-October-28-2022.pdf
(last visited November 15, 2022). BOX had an average daily market
share of 6.62% for the month of October 2022. See Market at a
Glance, available at https://www.miaxoptions.com/ (last visited
November 15, 2022).
\19\ See NYSE Arca Options Fees and Charges, OTP Trading
Participant Rights, p.1, available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf (last visited November 15, 2022).
NYSE Arca recently increased this Options Trading Permit Fees
approximately 45%. See Securities Exchange Act Release No. 95142
(June 23, 2022), 87 FR 38786 (June 29, 2022) (SR-NYSEArca-2022-36).
Under the new fee structure, it effectively costs a Market Maker
$26,000 per month to trade all options issues on NYSE Arca.
\20\ See NYSE American Options Fee Schedule, Section III,
Monthly Trading Permit, Rights, Floor Access and Premium Product
Fees, p. 23-24, available at https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf
(last visited November 15, 2022). Under this fee structure, it
effectively costs a Market Maker $26,000 per month to trade all
options issues on NYSE American. NYSE American had an average daily
market share of 7.20% for the month of October 2022. See Market at a
Glance, available at https://www.miaxoptions.com/ (last visited
November 15, 2022).
\21\ See Nasdaq PHLX Options 7 Pricing Schedule, Section 8.
Membership Fees, available at https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207 (last visited November 15,
2022).
\22\ See Nasdaq ISE Options 7 Pricing Schedule, Section 8.A.
Access Services, available at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207 (last visited November 15,
2022). Nasdaq ISE had an average daily market share of 6.41% for the
month of October 2022. See Market at a Glance, available at https://www.miaxoptions.com/ (last visited November 15, 2022).
\23\ See Cboe Fee Schedule, Electronic Trading Permit Fees,
available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf (last visited November 15, 2022).
\24\ See Cboe C2 Fee Schedule, Access Fees, available at https://www.cboe.com/us/options/membership/fee_schedule/ctwo/ (last visited
November 15, 2022). Cboe C2 had an average daily market share of
4.77% for the month of October 2022. See Market at a Glance,
available at https://www.miaxoptions.com/ (last visited November 15,
2022).
\25\ See ``Membership Fees'' section of the Cboe BZX Options Fee
Schedule, available at https://www.cboe.com/us/options/membership/fee_schedule/bzx (last visited November 15, 2022). The Exchange
understands Cboe BZX Options charges the same Membership Fee to all
of its Options Members.
---------------------------------------------------------------------------
The Exchange also proposes to amend the first table of Trading
Permit fees in Section 3)b) of the Fee Schedule to provide additional
clarity. The Exchange has two categories of Members, Market Makers and
Electronic Exchange Members \26\ (``EEMs''). The
[[Page 71707]]
Exchange, therefore, proposes to replace the word ``Member'' with
``EEM'' under the heading ``Type of Trading Permit'' in the table of
Trading Permit fees that are based on type of interface used, FIX or
MEO. The purpose of this change is to clarify that the first table of
Trading Permit fees will now be applicable only to EEMs since the
Exchange proposes herein to provide a separate table describing the new
calculation and amount of Trading Permit fees for Market Makers.
---------------------------------------------------------------------------
\26\ The term ``Electronic Exchange Member'' or ``EEM'' means
the holder of a Trading Permit who is a Member representing as agent
Public Customer Orders or Non-Customer Orders on the Exchange and
those non-Market Maker Members conducting proprietary trading.
Electronic Exchange Members are deemed ``members'' under the
Exchange Act. See the Definitions Section of the Fee Schedule and
Exchange Rule 100.
---------------------------------------------------------------------------
History and Implementation
The Exchange notes that it previously filed similar proposals to
amend the amount and calculation of Trading Permit fees for Market
Makers, which filings contained other changes to the Exchange's Trading
Permit fees for EEMs. The Exchange has withdrawn those filings and
replaced them with the current filing.\27\ The Exchange previously
filed this proposal on November 7, 2022.\28\ On November 15, 2022, the
Exchange withdrew SR-PEARL-2022-49 and replaced it with this filing.
---------------------------------------------------------------------------
\27\ See SR-PEARL-2022-37 (withdrawn without being noticed by
the Commission) and Securities Exchange Act Release No. 95780
(September 15, 2022), 87 FR 57732 (September 21, 2022) (SR-PEARL-
2022-39) (withdrawn on November 7, 2022).
\28\ See SR-PEARL-2022-49 (withdrawn without being noticed by
the Commission).
---------------------------------------------------------------------------
The proposed rule change is immediately effective.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act, in general, and Section
6(b)(4) and 6(b)(5) of the Act,\29\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees, and other
charges among Exchange Members and other persons using its facilities
and does not unfairly discriminate between customers, issuers, brokers
or dealers.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange commenced operations in February 2017 \30\ and adopted
its initial fee schedule that waived fees for Trading Permits to trade
on the Exchange.\31\ Although trading permit fees were waived, an
initial fee structure was put in place to communicate the Exchange's
intent to charge trading permit fees in the future. As a new exchange
entrant, the Exchange chose to offer Trading Permits free of charge to
encourage market participants to trade on the Exchange and experience,
among things, the quality of the Exchange's technology and trading
functionality. This practice is not uncommon. New exchanges often do
not charge fees or charge lower fees for certain services such as
memberships/trading permits to attract order flow to an exchange, and
later amend their fees to reflect the true value of those services,
absorbing all costs to provide those services in the meantime. Allowing
new exchange entrants time to build and sustain market share through
various pricing incentives before increasing non-transaction fees
encourages market entry and promotes competition. It also enables new
exchanges to mature their markets and allow market participants to
trade on the new exchanges without fees serving as a potential barrier
to attracting memberships and order flow.\32\
---------------------------------------------------------------------------
\30\ See MIAX PEARL Successfully Launches Trading Operations,
dated February 6, 2017, available at https://www.miaxoptions.com/sites/default/files/alert-files/MIAX_Press_Release_02062017.pdf.
\31\ See Securities Exchange Act Release No. 80061 (February 17,
2017), 82 FR 11676 (February 24, 2017) (SR-PEARL-2017-10).
\32\ See Securities Exchange Act Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (stating, ``[t]he
Exchange established this lower (when compared to other options
exchanges in the industry) Participant Fee in order to encourage
market participants to become Participants of BOX. . .''). See also
Securities Exchange Act Release No. 90076 (October 2, 2020), 85 FR
63620 (October 8, 2020) (SR-MEMX-2020-10) (``MEMX Membership Fee
Proposal'') (proposing to adopt the initial fee schedule and stating
that ``[u]nder the initial proposed Fee Schedule, the Exchange
proposes to make clear that it does not charge any fees for
membership, market data products, physical connectivity or
application sessions.''). MEMX has seen its market share increase
and recently proposed to adopt a membership fee and fees for
connectivity. See Securities Exchange Act Release Nos. 93927
(January 7, 2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19)
(proposing to adopt membership fees); and 95299 (July 15, 2022), 87
FR 43563 (July 21, 2022) (SR-MEMX-2022-17) (proposing to adopt fees
for connectivity). See also, e.g., Securities Exchange Act Release
No. 88211 (February 14, 2020), 85 FR 9847 (February 20, 2020) (SR-
NYSENAT-2020-05), available at https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rule-filings/filings/2020/SR-NYSENat-2020-05.pdf (initiating market data fees for the NYSE National exchange
after initially setting such fees at zero).
---------------------------------------------------------------------------
Later in 2018, as the Exchange's market share increased,\33\ the
Exchange adopted nominal fees for Trading Permits along with a tiered-
volume based fee credit, known as the Trading Permit Fee Credit, and a
Monthly Volume Credit.\34\ At that time, the Exchange chose to adopt a
volume tier-based fee for Trading Permits along with the type of
interface used--FIX or MEO--as a way to provide different choices
regarding how potential Members could access the Exchange's System.
This was for business and competitive reasons and to provide choice
regarding Trading Permits and membership that had not previously
existed. The Exchange now proposes to move away from the above
described volume tier-based Trading Permit fee structure and align its
Market Maker Trading Permit fees with the Trading Permit fee structure
of the Exchange's affiliates, MIAX and MIAX Emerald, as well as other
options exchanges by assessing Market Makers Trading Permit fees based
on options classes assigned or percentage of national ADV.
---------------------------------------------------------------------------
\33\ The Exchange experienced a monthly average trading volume
of 3.94% for the month of March 2018. See Market at a Glance,
available at www.miaxoptions.com (last visited (November 15, 2022).
\34\ See supra note 9. The Exchange notes that it has since
filed to remove these credits. See Securities Exchange Act Release
Nos. 96249 (November 7, 2022), 87 FR 68217 (November 14, 2022) (SR-
PEARL-2022-47) and 96250 (November 7, 2022), 87 FR 68214 (November
14, 2022) (SR-PEARL-2022-46).
---------------------------------------------------------------------------
The Exchange recently reviewed its current Trading Permit fees. In
its review, the Exchange determined that the calculation and amount of
Trading Permit fees would need to be amended, and volume tier-based
Trading Permit fees for all Member types is no longer appropriate.
Specifically, the Exchange found that Market Makers were benefitting
from lower Trading Permit fees while (1) consuming the most bandwidth
and resources of the network; (2) transacting the vast majority of the
volume on the Exchange; and (3) requiring the high touch network
support services provided by the Exchange and its staff. The Exchange
notes that Broker Dealers, Professional Customers, and Priority
Customers \35\ take up significantly less Exchange resources and costs.
Further, the Exchange notes that Market Makers account for greater than
99% of message traffic over the network, while other non-Market Maker
market participants account for less than 1% of message traffic over
the network. Market Makers are the primary users of the Exchange's high
performance MEO Interface. The Exchange's high performance MEO
Interface (including employee support for such interface), utilized by
Market
[[Page 71708]]
Makers, provides unparalleled system throughput and the capacity to
handle 10.8 million quotes per second and average round trip latency
rate of approximately 30.76 microseconds for a single quote. Over the
period from March 2022 through May 2022, the Exchange processed 386.1
billion messages (99.67% of total messages received) over the MEO
Interface, almost entirely from Market Maker message traffic (which
equals approximately 6 billion messages per day over that time period)
(386.1 billion messages divided 64 trading days from March through May
2022).
---------------------------------------------------------------------------
\35\ The term ``Priority Customer'' means a person or entity
that (i) is not a broker or dealer in securities, and (ii) does not
place more than 390 orders in listed options per day on average
during a calendar month for its own beneficial accounts(s). The
number of orders shall be counted in accordance with Interpretation
and Policy .01 of Exchange Rule 100. See the Definitions Section of
the Fee Schedule and Exchange Rule 100, including Interpretation and
Policy .01.
---------------------------------------------------------------------------
The Exchange notes that while Market Makers continue to account for
a vast majority of the increased costs and resources placed on the
Exchange and its systems (as discussed herein), Market Makers continue
to be valuable market participants on the exchanges as the options
market is a quote driven industry. The Exchange recognizes the value
that Market Makers bring to the Exchange. In fact, the Exchange
provides Market Makers transactional volume-based discounts and rebates
to incentivize Market Makers to direct order flow to the Exchange to
obtain the benefit of the rebate, which will in turn benefit all market
participants by increasing liquidity on the Exchange.\36\ The proposed
Trading Permit fees discussed herein are meant to strike a balance
between offsetting the costs to which Market Makers place on the
Exchange and continuing to incentivize Market Makers to access and make
markets on the Exchange.
---------------------------------------------------------------------------
\36\ For example, Market Makers may qualify for higher Tier 3
rebates as follows: (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 when adding liquidity. This is compared to a lower
Professional Customer Tier 3 rebate of ($0.40) for options
transactions in the same classes. See Fee Schedule, Section 1)a),
footnote ``[lozf].''
---------------------------------------------------------------------------
In its review of Trading Permit fees, the Exchange found that since
2018, Market Makers were paying nearly the same Trading Permit fees as
EEMs that used the MEO Interface despite Market Makers consuming the
most resources on the Exchange's system and contributing to increased
costs for the Exchange. As such, the Exchange proposes to establish
higher, separate electronic Trading Permit fees for Market Makers that
are more aligned with the costs and resources that Market Makers
continue to place on the Exchange and its systems and will align the
Trading Permit fees with those of the majority of other options
exchanges at similar or lower rates.\37\
---------------------------------------------------------------------------
\37\ See supra notes 18 to 25.
---------------------------------------------------------------------------
Additionally, the Exchange believes that the proposed change will
better align the Exchange's Trading Permit fees with rates charged by
its affiliates and competing options exchanges in the industry for
similar Trading Permits for such market participants. As such, the
Exchange believes the proposed Market Maker Trading Permit fees are
reasonable in that they are lower than comparable fees at other options
exchanges.\38\ Further, the Exchange believes that the proposal is
reasonably designed to continue to compete with other options exchanges
by incentivizing market participants to register as Market Makers on
the Exchange in a manner than enables the Exchange to improve its
overall competitiveness and strengthen market quality for all market
participants. As stated above, the Exchange believes the proposed
Market Maker Trading Permit fees are an appropriate balance between
offsetting the costs to which Market Makers cost the Exchange and
continuing to incentivize Market Makers to access and make a market on
the Exchange.
---------------------------------------------------------------------------
\38\ See id.
---------------------------------------------------------------------------
The proposed fees are equitable and not unfairly discriminatory as
the fees apply equally to all Market Makers. As such, all similarly
situated Market Makers, with the same number of appointments, will be
subject to the same Market Maker Trading Permit fee. With the proposed
changes, a Market Maker would be determined to be registered in a class
if that Market Maker has been registered in one or more series in that
class. Exchange Rule 602(a) provides that a Member that has qualified
as a Market Maker may register to make markets in individual series of
options. The proposed tiered structure is based on the number of
options classes the Market Maker is registered in, not the number of
series within the options class. The Exchange believes its proposal is
fair and reasonable because the proposed tiered structure would
encourage Market Makers to register in more series within each options
class as each additional series in that class would not count towards
the particular Market Maker's overall number of classes assigned, and
cause them to qualify for a higher tier and higher fee.
The Exchange also believes that assessing lower fees to Market
Makers that quote in fewer classes is reasonable and appropriate as it
will allow the Exchange to retain and attract smaller-scale Market
Makers, which are an integral component of the options industry
marketplace. Since these smaller Market Makers utilize less bandwidth
and capacity on the Exchange network due to the lower number of quoted
classes, the Exchange believes it is reasonable and appropriate to
offer such Market Makers a lower fee. The Exchange also notes that
other options exchanges assess permit fees at different rates, based
upon a member's participation on that exchange,\39\ and, as such, this
concept is not new or novel.
---------------------------------------------------------------------------
\39\ See supra notes 18 to 25; see also MIAX Fee Schedule,
Section 3)b) and MIAX Emerald Fee Schedule, Section 3)b).
---------------------------------------------------------------------------
Further, the Exchange believes the proposed tiered structure of the
Market Maker Trading Permit fees is reasonable and appropriate. Under
the proposal, Market Makers will be charged monthly fees based on the
greatest number of classes quoted on any given trading day in a
calendar month or upon certain class volume percentages of national
ADV. Under the proposed fee structure, the fees increase as the number
of classes quoted by a Market Maker increases. The Exchange believes
this structure is reasonable and not unfairly discriminatory because
the Exchange's system requires increased performance and capacity in
order to provide the opportunity for Market Makers to quote in a higher
number of options classes on the Exchange. Specifically, the more
classes that are actively quoted on the Exchange by a Market Maker
requires increased memory for record retention, increased bandwidth for
optimized performance, increased functionalities on each application
layer, and increased optimization with regard to surveillance and
monitoring of such classes quoted. As such, basing the Market Maker
Trading Permit fee on the greatest number of classes quoted in on any
given day in a calendar month is reasonable and appropriate when taking
into account how the increased number of quoted classes directly impact
the costs and resources required for the Exchange. Further, the
Exchange believes that the proposed structure is equitable and not
unfairly discriminatory as all similarly situated Market Makers will be
charged the same fee. The Exchange notes that options exchanges in the
industry calculate Market Maker Permit Fees in the same manner.\40\
---------------------------------------------------------------------------
\40\ See supra notes 18 to 25.
---------------------------------------------------------------------------
There is no requirement, regulatory or otherwise, that any broker-
dealer connect to and access any (or all of) the available options
exchanges. One other exchange recently noted in a proposal to amend
their own trading permit fees
[[Page 71709]]
that of the 62 market making firms that are registered as Market Makers
across Cboe, MIAX, and BOX, 42 firms access only one of the three
exchanges.\41\ Further, the Exchange and its affiliates, MIAX and MIAX
Emerald, have a total of 47 members. Of those 47 total members, 36 are
members of all three exchanges, four (4) are members of only two (2)
exchanges, and seven (7) are members of only one exchange. Of those
that are currently Market Makers on the Exchange, two (2) are not
registered as Market Makers on MIAX, four (4) are not registered as
Market Makers on MIAX Emerald, and one (1) is not registered as a
Market Maker on MIAX or MIAX Emerald. The above data evidences that a
Market Maker need not be a Member of all options exchanges, let alone
the Exchange and its two affiliates, and market makers elect to do so
based on their own business decisions and need to directly access each
exchange's liquidity pool. Not only is there not an actual regulatory
requirement to connect to every options exchange, the Exchange believes
there is also no ``de facto'' or practical requirement as well, as
further evidenced by the market maker membership analysis of the
options exchanges discussed above. Indeed, Market Makers choose if and
how to access a particular exchange and because it is a choice, the
Exchange must set reasonable pricing, otherwise prospective market
makers would not connect and existing Market Makers would disconnect
from the Exchange.
---------------------------------------------------------------------------
\41\ See Securities Exchange Act Release No. 94894 (May 11,
2022), 87 FR 29987 (May 17, 2022) (SR-BOX-2022-17) (Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change to Amend the
Fee Schedule on the BOX Options Market LLC Facility To Adopt
Electronic Market Maker Trading Permit Fees). The Exchange believes
that BOX's observation demonstrates that market making firms can,
and do, select which exchanges they wish to access, and,
accordingly, options exchanges must take competitive considerations
into account when setting fees for such access.
---------------------------------------------------------------------------
The Exchange believes that elasticity of demand for Exchange
Membership exists when it comes to purchasing a Trading Permit and, as
evidenced by the data provided below, prior fee proposals have resulted
in Members terminating their memberships.\42\ For example, over the
course of those prior filings, three Members terminated their
memberships in the time since the proposed fee increase first went into
effect.
---------------------------------------------------------------------------
\42\ See Securities Exchange Act Release No. 95419 (August 4,
2022), 87 FR 48702 (August 10, 2022) (SR-PEARL-2022-30).
---------------------------------------------------------------------------
Further, other exchanges have also experienced termination of
memberships if their members deem permit or membership fees to be
unreasonable or excessive. For example, the Exchange notes that a BOX
participant modified its access to BOX in connection with the
implementation of a proposed change to BOX's permit fees.\43\ The
absence of new memberships coupled with the termination of three
memberships on the Exchange, as well as similar membership changes on
another options exchange in relation to a trading permit fee increase,
clearly shows that elasticity of demand exists.
---------------------------------------------------------------------------
\43\ According to BOX, a Market Maker on BOX terminated its
status as a Market Maker in response to BOX's proposed modification
of Market Maker trading permit fees. See Securities Exchange Act
Release No. 94894 (May 11, 2022), 87 FR 29987 (May 17, 2022) (SR-
BOX-2022-17). BOX noted, and the Exchange agrees, that this Market
Maker's decision demonstrates that Market Makers can, and do, alter
their membership status if they deem permit fees at an exchange to
be unsuitable for their business needs, thus demonstrating the
competitive environment for Market Maker permit fees and the
constraints on options exchanges when setting Market Maker permit
fees.
---------------------------------------------------------------------------
The Exchange notes that there are material costs associated with
providing the infrastructure and headcount to fully-support access to
the Exchange. The Exchange incurs technology expenses related to
establishing and maintaining Information Security services, enhanced
network monitoring and customer reporting associated with its network
technology. While some of the expense is fixed, much of the expense is
not fixed, and thus increases as the expenses associated with access
services for Market Makers increases. For example, new Market Makers to
the Exchange may require the purchase of additional hardware to support
those Members as well as enhanced monitoring and reporting of customer
performance that the Exchange provides. Further, as the total number of
Market Makers increase, the Exchange may need to increase its data
center footprint and consume more power, resulting in increased costs
charged by their third-party data center provider. Accordingly, the
cost to the Exchange to provide access to its Market Makers is not
fixed. The Exchange believes the proposed Market Maker Trading Permit
fees are reasonable in order to offset a portion of the costs to the
Exchange associated with providing access to Market Makers to its quote
and order infrastructure.
The Exchange believes that charging higher fees to Market Makers,
who connect solely through the MEO Interface, is not unfairly
discriminatory because Market Makers continue to account for the vast
majority of network capacity utilization and trading activity on the
Exchange and the MEO Interface provides higher throughput and enhanced
functionality compared to the FIX Interface, justifying the increased
cost. MEO Interface users account for the majority of expenses placed
on the Exchange's systems. The MEO Interface also provides additional
functionality that Market Makers using the MEO Interface use to fulfill
their market making obligations. The Exchange offers three time-in-
force modifiers: \44\ Day Limit (``Day''), Immediate-Or-Cancel
(``IOC''), and Good `Til Cancelled (``GTC'').\45\ While all order types
are available for use on either interface, only the time-in-force
modifiers of IOC and Day are available on the MEO Interface.\46\ Market
Makers utilize the time-in-force of Day on orders to be posted on the
MIAX Pearl Options Book \47\ and to meet Market Makers' continuous
quoting obligations under Exchange Rule 605(d).\48\ The MEO Interface
allows the submission of Cancel-Replacement orders,\49\ which allow for
the immediate cancellation of a previously received order and the
replacement of that order with a new order with new terms and
conditions.\50\ Cancel-Replacement orders are primarily used by Market
Makers as part of their continuous quoting obligations. Market Makers
use only the MEO Interface due to its lower latency, higher throughput,
available time-in-force instructions and order types that assist them
in satisfying their market making obligations. Market Makers do not use
the FIX Interface due to the unavailability of the above functionality.
The MEO Interface is the
[[Page 71710]]
more robust interface offering lower latency and higher throughput.
Market Makers use only the MEO Interface.
---------------------------------------------------------------------------
\44\ See MIAX Pearl Options Exchange User Manual, Section 6,
Order Types, available at https://www.miaxoptions.com/exchange-functionality/pearl (last visited November 4, 2022).
\45\ See, e.g., Exchange Rule 516.
\46\ See preamble to Exchange Rule 516 (noting that not all
order types and modifiers are available for use on each of the MEO
Interface and the FIX Interface). See also Section 4.1.1.2 of the
MEO Interface Specification, available at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf (indicating that the time-in-force
instructions of IOC and Day are available on the MEO interface).
\47\ The term ``Book'' means the electronic book of buy and sell
orders and quotes maintained by the System. See Exchange Rule 100.
\48\ Only the time-in-force modifiers of IOC and Day are
available on the MEO Interface. See Exchange Rule 516 (noting that
not all order types and modifiers are available for use on each of
the MEO Interface and the FIX Interface). See also MIAX Pearl
Options Exchange MEO Interface Specification, Section 4.1.1.2,
available at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf (indicating that the time-in-
force instructions of IOC and Day are available on the MEO
interface).
\49\ See MIAX Pearl Options Exchange User Manual, Section 6,
Interfaces and Liquidity Types, available at https://www.miaxoptions.com/exchange-functionality/pearl (last visited
November 4, 2022).
\50\ See Exchange Rule 516(d).
---------------------------------------------------------------------------
The Exchange notes that while Market Makers continue to account for
a vast majority of the increased System usage placed on the Exchange,
Market Makers continue to be valuable market participants on the
exchanges as the options market is a quote driven industry. The
Exchange recognizes the value that Market Makers bring to the Exchange.
The Exchange proposes higher, separate fees for Market Makers that are
more aligned with the costs and resources that Market Makers continue
to place on the Exchange and its systems.
The Exchange believes that the proposed Market Maker Trading Permit
fees are reasonable, equitable, and not unfairly discriminatory. The
Exchange believes that the reasonableness of its proposed fees is
demonstrated by the very fact that such fees are in line with, and in
some cases lower than, the costs of similar access fees at other
exchanges.\51\ The Exchange notes these fees were similarly filed with
the Commission and neither suspended nor disapproved.\52\ The proposed
fees are fair and equitable and not unfairly discriminatory because
they apply equally to all Market Makers and access to the Exchange is
offered on terms that are not unfairly discriminatory. The Exchange
designed the fee rates in order to provide objective criteria for
Market Makers of different sizes and business models that best matches
their quoting activity on the Exchange. The Exchange believes that the
proposed fee rates and criteria provide an objective and flexible
framework that will encourage Market Makers to be appointed and quote
in option classes while also equitably allocating the fees in a
reasonable manner amongst Market Maker appointments to account for
quoting and trading activity.
---------------------------------------------------------------------------
\51\ See supra notes 18 to 25.
\52\ The Exchange presumes that the fees of other exchanges are
reasonable, as required by the Exchange Act in the absence of any
suspension or disapproval order by the Commission providing
otherwise.
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The Exchange again notes that it operates in a highly competitive
market in which market makers can readily favor competing venues if
they deem fee levels at a particular venue to be excessive. In such an
environment, the Exchange must continually adjust its fees for services
and products, in addition to order flow, to remain competitive with
other exchanges. The Exchange believes that the proposed changes
reflect this competitive environment.
The Exchange again notes it is not aware of any reason why Market
Makers could not simply drop their access to an exchange (or not
initially access an exchange) if an exchange were to establish prices
for its non-transaction fees that, in the determination of such Market
Maker, did not make business or economic sense for such Market Maker to
access such exchange. The Exchange again notes that no market makers
are required by rule, regulation, or competitive forces to be a Market
Maker on the Exchange.
In sum, the Exchange believes the proposed fees are reasonable and
reflect a competitive environment, as the Exchange seeks to amend its
Trading Permit fees for Market Makers, while still attracting Market
Makers to continue to, or seek to, access the Exchange. The Exchange
further believes the proposed Trading Permit fees discussed herein are
an appropriate balance between offsetting the costs to which Market
Makers cost the Exchange and continuing to incentivize Market Makers to
access and make a market on the Exchange.
Clarifying Change
The Exchange believes its proposal to change the word ``Member'' to
``EEM'' under the heading ``Type of Trading Permit'' in the table of
Trading Permit fees that are based on type of interface used, FIX or
MEO, is reasonable because it will provide additional clarity within
the Fee Schedule. As stated above, the Exchange has two categories of
Members, Market Makers and EEMs. This proposed change would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it specify that there are separate
Trading Permit fee tables for EEMs and Market Makers, removing the
potential investor confusion and clearly setting forth which fee is
applicable to EEMs and which fee is applicable to Market Makers.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Intra-Market Competition
The Exchange believes that the proposed Market Maker Trading Permit
fees do not place certain market participants at a relative
disadvantage to other market participants because the proposed fees do
not favor certain categories of market participants in a manner that
would impose a burden on competition; rather, the fee rates are
designed in order to provide objective criteria for Market Makers of
different sizes and business models that best matches their quoting
activity on the Exchange. Further, the Exchange believes that the
proposed Market Maker Trading Permit fees will not impose a burden on
intramarket competition because, when these fees are viewed in the
context of the overall activity on the Exchange, Market Makers: (1)
consume the most bandwidth and resources of the network; (2) transact
the vast majority of the volume on the Exchange; and (3) require the
high touch network support services provided by the Exchange and its
staff, including more costly network monitoring, reporting and support
services, resulting in a much higher cost to the Exchange. The Exchange
notes that the majority of customer demand comes from Market Makers,
whose transactions make up a majority of the volume on the Exchange.
Further, as discussed herein, other Member types (Broker Dealers,
Professional Customers, and Priority Customers) take up significantly
less Exchange resources and costs. As such, the Exchange does not
believe charging Market Makers higher Trading Permit fees than other
Member types will impose a burden on intramarket competition.
The Exchange believes that the tiered structure of the proposed
Market Maker Trading Permit fees will not impose a burden on
intramarket competition because the tiered structure takes into account
the number of classes quoted by each individual Market Maker. As
discussed herein, the Exchange's system requires increased performance
and capacity in order to provide the opportunity for each Market Maker
to quote in a higher number of options classes on the Exchange.
Specifically, the more classes that are actively quoted on the Exchange
by a Market Maker requires increased memory for record retention,
increased bandwidth for optimized performance, increased
functionalities on each application layer, and increased optimization
with regard to surveillance and monitoring of such classes quoted. As
such, basing the Market Maker Trading Permit fee on the greatest number
of classes quoted in on any given day in a calendar month is reasonable
and appropriate when taking into account how the increased number of
quoted classes directly impact the costs and resources for the
Exchange.
Inter-Market Competition
The Exchange believes the proposed Market Maker Trading Permit fees
do
[[Page 71711]]
not place an undue burden on competition on other self-regulatory
organizations that is not necessary or appropriate. The proposed tiered
structure is based on the number of options classes the Market Maker is
registered in, not the number of series within the options class. The
Exchange believes its proposal would promote intermarket competition
because the proposed tiered structure would encourage Market Makers to
register in more series within each options class as each additional
series in that class would not count towards the particular Market
Maker's overall number of classes assigned, and cause them to qualify
for a higher tier and higher fee. This could improve the Exchange's
market quality by encouraging Market Makers to quote more series within
an options class without it impacting its Trading Permit fee.
Market making firms are not forced to become market makers on all
options exchanges. The Exchange notes that it has far less Market
Makers as compared to the much greater number of market makers at other
options exchanges. There are a number of large market makers that are
participants of other options exchange but not Members of the Exchange.
The Exchange is also unaware of any assertion that its existing fee
levels or the proposed Market Maker Trading Permit fees would somehow
unduly impair its competition with other options exchanges. To the
contrary, if the fees charged are deemed too high by a market making
firm, they can simply discontinue their membership with the Exchange.
The Exchange operates in a highly competitive market in which
market participants can readily favor one of the 15 competing options
venues if they deem fee levels at a particular venue to be excessive.
Based on publicly-available information, and excluding index-based
options, no single exchange has more than 11-12% equity options market
share.\53\ Therefore, no exchange possesses significant pricing power
in the execution of multiply-listed equity and exchange-traded fund
(``ETF'') options order flow. For the month of October 2022, the
Exchange had a market share of approximately 4.32% of executed
multiply-listed equity options \54\ and the Exchange believes that the
ever-shifting market share among exchanges from month to month
demonstrates that market participants can discontinue or reduce use of
certain categories of products, or shift order flow, in response to fee
changes. In such an environment, the Exchange must continually adjust
its fees and fee waivers to remain competitive with other exchanges and
to attract order flow to the facility.
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\53\ See Market at a Glance, available at www.miaxoptions.com
(last visited November 15, 2022).
\54\ See id.
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Finally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues. In such an environment, the Exchange must continually
review, and consider adjusting, its fees and credits to remain
competitive with other exchanges. For the reasons described above, the
Exchange believes that the proposed rule change reflects this
competitive environment.
Clarifying Change
The Exchange believes its proposal to change the word ``Member'' to
``EEM'' under the heading ``Type of Trading Permit'' in the table of
Trading Permit fees that are based on type of interface used, FIX or
MEO, will not impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
believes the proposed changes will not impose any burden on intra-
market competition because the change simply clarifies that the first
table of Trading Permit fees applies only to EEMs. The Exchange
believes the proposed change will have not impose any burden on intra-
market competition as the proposed change is not designed to address
any competitive issue but rather is designed to provide clarity to the
Fee Schedule. In addition, the Exchange does not believe the proposal
will impose any burden on inter-market competition as the proposal does
not address any competitive issues and is intended to protect investors
by providing further transparency and precision for the Fee Schedule.
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,\55\ and Rule 19b-4(f)(2) \56\ 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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\55\ 15 U.S.C. 78s(b)(3)(A)(ii).
\56\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-PEARL-2022-51 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-2022-51. 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
[[Page 71712]]
comment submissions. You should submit only information that you wish
to make available publicly. All submissions should refer to File Number
SR-PEARL-2022-51 and should be submitted on or before December 14,
2022.
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\57\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\57\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25471 Filed 11-22-22; 8:45 am]
BILLING CODE 8011-01-P
