Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To No Longer Operate Its 10 Gigabit Ultra-Low Latency Connectivity on a Single Shared Network With Its Affiliate, Miami International Securities Exchange, LLC, 79379-79383 [2022-28087]
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Federal Register / Vol. 87, No. 247 / Tuesday, December 27, 2022 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96553; File No. SR–
PEARL–2022–60]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To No Longer Operate Its
10 Gigabit Ultra-Low Latency
Connectivity on a Single Shared
Network With Its Affiliate, Miami
International Securities Exchange, LLC
December 20, 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 December
19, 2022, MIAX PEARL, LLC (‘‘MIAX
Pearl’’ or the ‘‘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
no longer operate 10 gigabit (‘‘Gb’’)
ultra-low latency (‘‘ULL’’) connectivity
to the Exchange on a single shared
network with its affiliate, Miami
International Securities Exchange, LLC
(‘‘MIAX’’), due to ever-increasing
capacity constraints and to
accommodate anticipated access needs
for Members 3 and other market
participants.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/pearl at MIAX Pearl’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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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
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The term ‘‘Member’’ means an individual or
organization that is registered with the Exchange
pursuant to Chapter II of these 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.
2 17
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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 no longer
operate 10Gb ULL connectivity to the
Exchange on a single shared network
with its affiliate, MIAX, due to everincreasing capacity constraints and to
accommodate anticipated access needs
for Members and other market
participants. The Exchange has shared a
single network with MIAX since MIAX
Pearl became operational on February 6,
2017.4 On the contrary, the Exchange
and its other affiliate, MIAX Emerald,
LLC (‘‘MIAX Emerald’’), operate on
separate, unshared 10Gb ULL networks,
since the launch of MIAX Emerald in
March 2019.5 The Exchange believes
this separated network structure is also
similar to at least one other national
securities exchange group with multiple
exchanges.6 Operating two separate
national securities exchanges on a single
shared network provided certain
benefits, such as streamlined
connectivity to multiple exchanges, and
simplified exchange infrastructure.
However, doing so is no longer
sustainable due to ever-increasing
capacity constraints and current
System 7 limitations. The network is not
an unlimited resource. As described
4 See Press Release ‘‘MIAX PEARL Successfully
Launches Trading Operations’’ (February 7, 2017),
available at https://www.miaxoptions.com/pressreleases?_miax_filter_created%5Bmin%5D=201702-01+00%3A00%3A00&_miax_filter_
created%5Bmax%5D=2017-0228+23%3A59%3A59&actions=&_miax_filter_
month=2&_miax_filter_year=2017; see also
Securities Exchange Act Release No. 79543
(December 13, 2016), 81 FR 92901 (December 20,
2016) (File No. 10–227) (order approving
application of MIAX PEARL, LLC for registration as
a national securities exchange).
5 See Securities Exchange Act Release No. 87877
(December 31, 2019), 85 FR 738 (January 7, 2020)
(SR–EMERALD–2019–39) (proposal to adopt
connectivity fees without providing access to MIAX
Emerald’s affiliates, MIAX and MIAX Pearl, via a
single shared connection).
6 See the Physical Connectivity Fees sections of
the Cboe BYX Exchange, Inc. (‘‘BYX’’), Cboe BZX
Exchange, Inc. (‘‘BYX’’), Cboe EDGA Exchange, Inc.
(‘‘EDGA’’), and Cboe EDGX Exchange, Inc.
(‘‘EDGX’’, collectively with BYX, BZX, and EDGA,
the ‘‘Cboe Equity Exchanges’’) equity fee schedules
(not providing that a single port provides
connectivity to each of Cboe Equity Exchanges).
7 The term ‘‘System’’ means the automated
trading system used by the Exchange for the trading
of securities. See Exchange Rule 100.
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79379
more fully below, the connectivity
needs of Members and market
participants increased every year since
the launch of the Exchange and the
operations of the Exchange and MIAX
on a single shared 10Gb ULL network is
no longer feasible. This requires
constant System expansion to meet
Member demand for additional ports
and 10Gb ULL connections, which has
resulted in limited available System
headroom (described in detail below).
Therefore, the Exchange proposes to
provide 10Gb ULL connectivity to the
Exchange and MIAX on separate
networks so that the Exchange and
MIAX may increase their respective
System capacities to meet the ongoing
and anticipated connectivity needs of
Members, prospective Members, and
other market participants.
The Exchange began to operate on a
single shared network with MIAX when
the Exchange commenced operations as
a national securities exchange on
February 7, 2017.8 The Exchange and
MIAX have operated on a single shared
network to provide Members with a
single convenient set of access points
for both exchanges. Both the Exchange
and MIAX offer two methods of
connectivity, 1Gb and 10Gb ULL
connections. The 1Gb connection
services are supported by a discrete set
of switches providing 1Gb access ports
to Members. The 10Gb ULL connection
services are supported by a second and
mutually exclusive set of switches
providing 10Gb ULL access ports to
Members. Today, both the 1Gb and
10Gb ULL shared extranet ports allow
Members to use one connection to
access both exchanges, namely their
trading platforms, market data systems,
test systems, and disaster recovery
facilities.
As stated above, the shared network is
not an unlimited resource and its
expansion is constrained by MIAX
Pearl’s and MIAX’s ability to provide
fair and equitable access to all market
participants of both markets. The
Exchange and MIAX continue to be able
to meet the access demands of new
subscribers and satisfy the ongoing
access demands of existing subscribers.
However, over time, due to the everincreasing connectivity demands, the
Exchange now finds it necessary to
bifurcate 10Gb ULL connectivity to the
Exchange’s and MIAX’s Systems and
8 See Securities Exchange Act Release No. 80061
(February 17, 2017), 82 FR 11676 (February 24,
2017) (establishing MIAX Pearl Fee Schedule and
establishing that the MENI can also be configured
to provide network connectivity to the trading
platforms, market data systems, test systems, and
disaster recovery facility of the MIAX Pearl’s
affiliate, MIAX, via a single, shared connection).
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Switch
1
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Shared Network ...............................................
Single MIAX Network .......................................
Single Pearl Network .......................................
performance. Those Members routinely
decide to rebalance the amount of
orders and/or messages over its various
connections to ensure each connection
is operating with maximum efficiency.
Simply adding switches to the extranet
is ineffective at resolving the port
availability concerns on the existing
extranet since many of the latency
sensitive Members are unwilling to
relocate their connections to a new
switch due to the potential detrimental
performance impact. As such, the
impact of adding new switches and
rebalancing ports is not effective. The
Exchange has, therefore, found that
ongoing and continued rebalancing once
additional switches are added has had,
and will continue to have, a
diminishing return on increasing
available 10Gb ULL connectivity.
The below example illustrates how
the bifurcation of the 10Gb ULL network
would lead to expanded access. This
example is for illustrative purposes
only. Assume the shared network
includes ten (10) switches and each
switch provides access via 24 10Gb ULL
connections. For each switch, the
numerator represents the number of
consumed 10Gb ULL connections while
the denominator represents the number
of available 10Gb ULL connections. The
‘‘Shared Network’’ row illustrates the
number of consumed and available
10Gb ULL connections on each switch.
The usage of the ports on the shared
network are roughly distributed 50% to
MIAX Options and 50% to MIAX Pearl
Options. The ‘‘Single MIAX Network’’
and ‘‘Single Pearl Network’’ rows
illustrate how the Exchange may double
its available 10Gb ULL connections
simply by bifurcating the Shared 10Gb
ULL network.
removers) that seek to maintain
connectivity across multiple 10Gb ULL
switches. Such Members do not
typically use a shared 10Gb ULL
connection to reach both the Exchange
and MIAX due to related latency
concerns. Instead, those Members
maintain dedicated separate 10Gb ULL
connections for the Exchange and
separate dedicated 10Gb ULL
connections for MIAX. This results in a
much higher 10Gb ULL usage per
switch by those Members on the
existing shared 10Gb ULL network than
would otherwise be needed if the
Exchange and MIAX had their own
dedicated 10Gb ULL networks, similar
to that provided by other exchanges,
including the Exchange’s and MIAX’s
affiliate, MIAX Emerald. Separation of
the Exchange and MIAX 10Gb ULL
networks would naturally lend itself to
reduced 10Gb ULL port consumption on
each switch and, therefore, increased
10Gb ULL port availability for current
Members and new Members.
To date, the Exchange and MIAX have
continued to add switches to meet
ongoing demand for 10Gb ULL
connectivity. Unfortunately, that is no
longer sustainable because simply
adding additional switches to expand
the current shared 10Gb ULL network
would not continue to alleviate the
issue of limited available port
connectivity. While it would result in a
gain in overall port availability, the
existing switches in use would continue
to suffer from lack of port headroom
given many latency sensitive Members’
needs for a presence on each switch to
reach both the Exchange and MIAX.
This is because those latency sensitive
Members seek to have a presence on
each switch to maximize the probability
of experiencing the best network
networks to be able to continue to meet
ongoing and future 10Gb ULL
connectivity and access demands.
Currently, the Exchange maintains
sufficient headroom to meet ongoing
and future requests for 1Gb
connectivity. Therefore, the Exchange
does not propose to alter 1Gb
connectivity and will continue to
provide 1Gb connectivity over a shared
network and provide access to both the
Exchange and MIAX over a single 1Gb
connection.
The Exchange has two categories of
Members: Market Makers 9 and
Electronic Exchange Members 10
(‘‘EEMs’’). 10Gb ULL connectivity is
predominantly used by Market Makers,
latency sensitive liquidity removers, or
those that require higher throughput
(i.e., greater than 1Gb). 1Gb connectivity
is predominately used by EEMs who are
less latency sensitive and tend to utilize
a limited number of 1Gb connections.
These EEMs will continue to be able to
use that single 1Gb connection to access
both the Exchange and MIAX. Certain
EEMs use 10Gb ULL connectivity,
primarily where that EEM also acts as a
Market Maker either on the Exchange
and/or MIAX and leverages that 10Gb
ULL connection to access both
exchanges. Service bureaus 11 also
purchase 10Gb ULL connectivity and
resell that connectivity to market
participants who may not have direct
connectivity to the Exchange.
Unlike the switches that provide 1Gb
connectivity, the switches that provide
10Gb ULL connectivity have
experienced a significant decrease in the
availability for additional 10Gb ULL
connections on each switch. This is
mostly driven by the connectivity
demands of latency sensitive Members
(e.g., Market Makers and liquidity
2
18/6
9/15
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19/5
9/15
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Based on its experience and expertise,
the Exchange finds the most practical
way to increase connectivity availability
on its switches is to bifurcate the
existing 10Gb ULL networks for the
Exchange and MIAX by migrating the
exchange’s connections from the shared
network onto their own set of switches.
If a number of new Members seek to
participate in high frequency activity
and require a port on each switch, they
could quickly consume the available
ports on the shared extranet. Further, if
an existing Member seeks to temporarily
double their port connections while
they transition to new network and/or
server infrastructure, they could
consume the remaining available ports
on the shared extranet. The Exchange,
therefore, believes it is necessary and
most efficient to bifurcate the Exchange
9 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 these Rules. See Exchange Rule 100.
10 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 Exchange Rule 100.
11 Service bureaus provide access to market
participants to submit and execute orders on an
exchange. On the Exchange, a Service Bureau may
be a Member. Some Members utilize a Service
Bureau for connectivity and that Service Bureau
may not be a Member. Some market participants
utilize a Service Bureau who is a Member to submit
orders. Only Members may submit orders or quotes
through 10Gb ULL connectivity.
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and MIAX 10Gb ULL networks so that
both exchanges can continue to satisfy
ongoing and anticipated future requests
for additional connectivity allowing it to
provide meaningful and fair access to
each market.
Bifurcating the Exchange and MIAX
10Gb ULL networks provides benefits
beyond the ability to continue to meet
ongoing and anticipated connectivity
demands. For example, today if there is
a problem on the shared network, it
could impact the operation of both the
Exchange and MIAX. As national
securities exchanges, the Exchange and
MIAX are subject to Regulation Systems
Compliance and Integrity (‘‘Reg.
SCI’’).12 Reg. SCI Rule 1001(a) requires
that the Exchange and MIAX establish,
maintain, and enforce written policies
and procedures reasonably designed to
ensure (among other things) that their
Reg. SCI systems have levels of capacity
adequate to maintain the Exchange’s
and MIAX’s operational capabilities and
promote the maintenance of fair and
orderly markets.13 By separating the
10Gb ULL networks, any potential
system issue would be limited to one
exchange, narrowing the impact and
preventing unnecessary systems
disruptions on the other exchange.
Bifurcating the networks supports the
Reg. SCI obligations for MIAX Pearl and
MIAX in this regard by limiting any
potential future risk of a systems issue
to one exchange and not impacting the
operations or market participants of the
other exchange. Bifurcating the
networks also allows each exchange to
evolve separately, potentially by using
different technology to cater to the
unique demands of each exchange and
their market participants to meet future
needs.
The Exchange again notes that
operating affiliated exchanges’ over
separate networks is not new or novel.
For example, the Exchange’s affiliate,
MIAX Emerald, currently operates on a
separate network.14 The Exchange notes
that at least one other group of affiliated
exchanges operate on separate
networks.15
The Exchange will file a separate
proposal with the Commission pursuant
to Section 19(b)(3)(A)(ii) of the Act 16 to:
(i) Set forth the applicable fees for the
bifurcated 10Gb ULL network; (ii)
remove provisions in the Exchange fee
schedule that provides for a shared
10Gb ULL network; and (iii) specify that
only the 1Gb network connection will
12 17
CFR 242.1000–1007.
CFR 242.1001(a).
14 See supra note 5.
15 See supra note 6.
16 15 U.S.C. 78s(b)(3)(A)(ii).
13 17
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Jkt 259001
continue to be shared by both the
Exchange and MIAX. The Exchange will
not bifurcate the 10Gb ULL network
until it files a proposal to set forth the
applicable fees for immediate
effectiveness pursuant to Section
19(b)(3)(A)(ii) of the Act.17
Implementation
Due to the technological changes
associated with this proposed change,
the Exchange expects to bifurcate the
Exchange and MIAX networks in the
first quarter of 2023, currently
anticipated to be January 23, 2023. The
Exchange issued a Trading Alert on
August 12, 2022 publicly announcing
the planned network change and
implementation plan and dates to
provide market participants adequate
time to prepare.18 Any changes to the
January 23, 2023 implementation date
would be announced in a separate alert.
2. Statutory Basis
The Exchange believes that its
proposal to bifurcate 10Gb ULL
connectivity in the System networks for
the Exchange and MIAX are consistent
with Section 6(b) of the Act 19 in
general, and furthers the objectives of
Section 6(b)(5) of the Act in that it is
designed to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest and is not designed to
permit unfair discrimination between
customers, issuers, brokers and dealers.
The Exchange believes that its
proposal is consistent with the
requirements under Section 6(b)(5) 20 of
the Act that the Exchange’s proposed
changes remove impediments to and
perfect the mechanism of a free and
open market and a national market
system. Operating affiliated exchanges
on their own dedicated, separate
networks is not new or novel. The
Exchange notes that it and its affiliate,
MIAX Emerald, currently operate on
separate networks.21 The Exchange is
also aware of at least on other group of
affiliated exchanges also operate on
separate networks.22
17 Id.
18 See MIAX Options and MIAX Pearl Options—
Announce planned network changes related to
shared 10G ULL extranet, issued August 12, 2022,
available at https://www.miaxoptions.com/alerts/
2022/08/12/miax-options-and-miax-pearl-optionsannounce-planned-network-changes-related-0 (last
visited November 17, 2022).
19 15 U.S.C. 78f(b).
20 Id.
21 See supra note 5.
22 See supra note 6.
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79381
The Exchange began to operate on a
single shared network with MIAX when
MIAX Pearl commenced operations as a
national securities exchange on
February 7, 2017.23 This shared network
is not an unlimited resource and its
expansion is constrained by its ability to
provide fair and equitable access to all
market participants. Due to the everincreasing connectivity demands, the
Exchange finds it necessary to bifurcate
10Gb ULL connectivity to the
Exchange’s and MIAX’s Systems and
networks to be able to continue to meet
ongoing and future 10Gb ULL
connectivity and access demands.
Unlike switches for 1Gb connectivity,
switches dedicated to 10Gb ULL
connectivity have experienced a
significant decrease in port headroom
mostly driven by connectivity demands
of latency sensitive Members that seek
to maintain connectivity across multiple
10Gb ULL switches. Separation of the
10Gb ULL networks of the Exchange
and MIAX would naturally lend itself to
reduced port consumption and,
therefore, increased port availability,
allowing the Exchange to continue to
meet ongoing and anticipated requests
for 10Gb ULL connectivity. Therefore,
the Exchange believes this proposal
removes impediments to and perfects
the mechanism of a free and open
market and a national market system.
Further, the proposed changes will
allow the Exchange and MIAX to adjust
the connectivity and access to their
Systems in order to ensure that both
markets are able to provide consistent
and fair access to their Members on nondiscriminatory terms and ensure
sufficient capacity and headroom in
their Systems. The Exchange and MIAX
constantly monitor their Systems’
performance based on market
conditions and the potential need to
make adjustments based on customer
demand. Accordingly, the Exchange’s
obligations under Section 6(b)(5) of the
Act,24 market participant demand, and
market conditions are key drivers of the
System’s architecture and expansion
and, thus, the Exchange believes simply
adding more switches and not
bifurcating the 10Gb ULL networks is
not an appropriate mechanism to
provide fair and open access to the
Exchange and MIAX.
23 See Securities Exchange Act Release No. 80061
(February 17, 2017), 82 FR 11676 (February 24,
2017) (establishing MIAX Pearl Fee Schedule and
establishing that the MENI can also be configured
to provide network connectivity to the trading
platforms, market data systems, test systems, and
disaster recovery facility of the MIAX Pearl’s
affiliate, MIAX, via a single, shared connection).
24 See 15 U.S.C. 78f(b).
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The Exchange and MIAX anticipate
that they will continue to expand their
Systems and provide Members and
other market participants with
additional access based on customer
demand and in response to changing
market conditions. The Exchange
represents that any expansion or
adjustments in the number of available
switches for network access will be
conducted in a similar manner that
ensures fair access to its System. The
Exchange will also continuously assess
its connectivity options and availability
to ensure that they meet the needs of all
market participants seeking to access
the Exchange and MIAX.
The Exchange believes that its
proposal is consistent with the
requirements under Section 6(b)(5) of
the Exchange Act that the Exchange
provide access on terms that are not
unfairly discriminatory and that the
rules of an Exchange promote just and
equitable principles of trade.25 The
Exchange believes the proposed changes
promote just and equitable principles of
trade because the proposal to split the
Exchange’s and MIAX’s shared 10Gb
ULL network connectivity will apply
equally to all market participants and
Members of both exchanges. The
proposed bifurcation of the Exchange
and MIAX 10Gb ULL network
connectivity will promote just and
equitable principles of trade because it
will allow the Exchange and MIAX to be
able to continue to offer access to their
Systems on terms that are not unfairly
discriminatory by continuing to meeting
ongoing and anticipated connectivity
demands of all Members. The shared
10Gb ULL network is not an unlimited
resource of either MIAX Pearl or MIAX
and its expansion is constrained by its
ability to provide fair and equitable
access to all market participants. The
Exchange believes this proposal will
allow the Exchange and MIAX to
continue to be able to meet the access
demands of new 10Gb ULL network
connectivity subscribers and satisfy the
ongoing 10Gb ULL connectivity access
demands of existing subscribers.
The Exchange believes its proposal to
bifurcate the 10Gb ULL networks of the
Exchange and MIAX is not designed to
permit unfair discrimination between
customers, issuers, brokers and dealers
because the Exchange believes that
bifurcating 10Gb ULL connectivity
between the Exchange and MIAX is the
most practical way to increase
connectivity availability on existing
switches, providing fair and consistent
access to all Members and potential
Members that require 10Gb ULL
25 15
U.S.C. 78f(b)(5).
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22:43 Dec 23, 2022
connectivity access. The proposed
change would increase available 10Gb
ULL connectivity to all market
participants, including Market Makers,
EEMs, and Service Bureaus, enabling
the Exchange to continue to meet
market participants’ current and
anticipated connectivity needs. The
Exchange also notes that certain market
participants may choose to not purchase
a 10Gb ULL connection to both the
Exchange and MIAX if they determine
that purchasing connections to both
exchanges is not in their business
interests or financially beneficial.
Similarly, Service Bureaus may also
choose to not purchase a 10Gb ULL
connection to both the Exchange and
MIAX if they determine that there is not
sufficient demand from their customers
to connect to one or both exchanges.
Other Members, particularly EEMs, may
choose to purchase 1Gb connectivity
instead and use that single connection
to access both the Exchange and MIAX.
As described in the above example, if
new or existing Members deem it
necessary for them to utilize additional
ports on each switch, those Members
will quickly consume the remaining
available ports, leaving very little or no
additional ports open for other Members
or new Members to gain access. Further,
if an existing Member seeks to
temporarily increase their 10Gb ULL
ports connections while they transition
to a new network and/or server
infrastructure, they could consume the
remaining available ports. In the
Exchange’s experience, these types of
scenarios have become more frequent,
leading to the Exchange’s proposal to
bifurcate the 10Gb ULL networks of the
Exchange and MIAX to be able to
continue to provide fair access to all
market participants of both exchanges.
The Exchange, therefore, believes its
proposal promotes just and equitable
principles of trade, removes
impediments to and perfects the
mechanism of a free and open market
and a national market system, and, in
general protects investors and the public
interest because it will allow MIAX
Pearl and MIAX to continue to satisfy
ongoing and anticipated future requests
for additional 10Gb ULL connectivity
access to each market.
Lastly, the Exchange believes that its
proposal is consistent with the
Exchange’s capacity obligations
pursuant Regulation SCI.26 Regulation
SCI Rule 1001(a) requires that the
Exchange and MIAX establish,
maintain, and enforce written policies
and procedures reasonably designed to
ensure (among other things) that their
26 17
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Regulation SCI systems have levels of
capacity adequate to maintain the
Exchange’s and MIAX’s operational
capabilities and promote the
maintenance of fair and orderly
markets.27 The Exchange’s proposal to
separate the 10Gb ULL networks of the
Exchange and MIAX would mean that
any future potential System issue would
be limited to only one exchange,
narrowing the impact and preventing
unnecessary Systems disruptions on the
other exchange. This protects investors
and the public interest by potentially
reducing market disruptions to either
MIAX Pearl or MIAX, depending on the
issue, as opposed to disrupting both
markets from a single event on the
shared network. The Exchange believes
this proposal supports the Regulation
SCI obligations for the Exchange and
MIAX in by limiting any potential
future risk of a systems issue to one
exchange and not impacting the
operations or market participants of the
other exchange. Bifurcating the
networks also allows each exchange to
evolve separately, potentially by using
different technology to cater to the
unique demands of each exchange and
their market participants to meet future
needs.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule changes will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. Specifically,
the Exchange believes the proposed
changes will not impose any burden on
intra-market competition because the
bifurcation of the Exchange and MIAX
10Gb ULL networks would affect all
Members equally and ensure that the
Exchange continues to be able to satisfy
all connectivity requests from all
Members as requested. The Exchange
believes the proposed rule changes will
not impose any burden on inter-market
competition. In fact, the Exchange
believes that not bifurcating the
Exchange and MIAX networks could
have an adverse impact on inter-market
competition because not doing so could
hamper the Exchange’s ability to expand
its network to meet ongoing and future
connectivity demand, which could, in
turn, limit its ability to compete for
Memberships and order flow.
Separating its 10Gb ULL network from
MIAX would enable the Exchange to
better compete with other exchanges by
ensuring it can provide adequate
connectivity to existing and new
Members, which may increase in ability
27 17
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CFR 242.1001(a).
27DEN1
Federal Register / Vol. 87, No. 247 / Tuesday, December 27, 2022 / Notices
to compete for order flow and deepen its
liquidity pool, improving the overall
quality of its market. Lastly, the
Exchange believes its proposal will not
impose any burden on inter-market
competition because it would allow the
Exchange to operate on a dedicated
network in the same manner as other
affiliated exchanges who operate on
dedicated networks separate from their
affiliates.28
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to 19(b)(3)(A)
of the Act 29 and Rule 19b–4(f)(6) 30
thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
TKELLEY on DSK125TN23PROD with NOTICES
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
28 See
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
PEARL–2022–60 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–2022–60. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–PEARL–2022–60 and
should be submitted on or before
January 17, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022–28087 Filed 12–23–22; 8:45 am]
supra notes 5 and 6.
U.S.C. 78s(b)(3)(A).
30 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
BILLING CODE P
29 15
VerDate Sep<11>2014
22:43 Dec 23, 2022
Jkt 259001
79383
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96548; File No. SR–
EMERALD–2022–35]
Self-Regulatory Organizations; MIAX
Emerald, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange
Rule 519C, Mass Cancellation of
Trading Interest
December 20, 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 December
8, 2022, MIAX Emerald, LLC (‘‘MIAX
Emerald’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Exchange Rule 519C, Mass Cancellation
of Trading Interest.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/emerald, at MIAX Emerald’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
Interpretations and Policies .01 of
Exchange Rule 519C, Mass Cancellation
1 15
31 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00111
Fmt 4703
Sfmt 4703
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
27DEN1
]]>Agencies
[Federal Register Volume 87, Number 247 (Tuesday, December 27, 2022)]
[Notices]
[Pages 79379-79383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-28087]
[[Page 79379]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96553; File No. SR-PEARL-2022-60]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To No Longer
Operate Its 10 Gigabit Ultra-Low Latency Connectivity on a Single
Shared Network With Its Affiliate, Miami International Securities
Exchange, LLC
December 20, 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 December 19, 2022, MIAX PEARL, LLC (``MIAX Pearl'' or the
``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 no longer operate 10 gigabit
(``Gb'') ultra-low latency (``ULL'') connectivity to the Exchange on a
single shared network with its affiliate, Miami International
Securities Exchange, LLC (``MIAX''), due to ever-increasing capacity
constraints and to accommodate anticipated access needs for Members \3\
and other market participants.
---------------------------------------------------------------------------
\3\ The term ``Member'' means an individual or organization that
is registered with the Exchange pursuant to Chapter II of these
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.
---------------------------------------------------------------------------
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 no longer operate 10Gb ULL connectivity to
the Exchange on a single shared network with its affiliate, MIAX, due
to ever-increasing capacity constraints and to accommodate anticipated
access needs for Members and other market participants. The Exchange
has shared a single network with MIAX since MIAX Pearl became
operational on February 6, 2017.\4\ On the contrary, the Exchange and
its other affiliate, MIAX Emerald, LLC (``MIAX Emerald''), operate on
separate, unshared 10Gb ULL networks, since the launch of MIAX Emerald
in March 2019.\5\ The Exchange believes this separated network
structure is also similar to at least one other national securities
exchange group with multiple exchanges.\6\ Operating two separate
national securities exchanges on a single shared network provided
certain benefits, such as streamlined connectivity to multiple
exchanges, and simplified exchange infrastructure. However, doing so is
no longer sustainable due to ever-increasing capacity constraints and
current System \7\ limitations. The network is not an unlimited
resource. As described more fully below, the connectivity needs of
Members and market participants increased every year since the launch
of the Exchange and the operations of the Exchange and MIAX on a single
shared 10Gb ULL network is no longer feasible. This requires constant
System expansion to meet Member demand for additional ports and 10Gb
ULL connections, which has resulted in limited available System
headroom (described in detail below). Therefore, the Exchange proposes
to provide 10Gb ULL connectivity to the Exchange and MIAX on separate
networks so that the Exchange and MIAX may increase their respective
System capacities to meet the ongoing and anticipated connectivity
needs of Members, prospective Members, and other market participants.
---------------------------------------------------------------------------
\4\ See Press Release ``MIAX PEARL Successfully Launches Trading
Operations'' (February 7, 2017), available at https://www.miaxoptions.com/press-releases?_miax_filter_created%5Bmin%5D=2017-02-01+00%3A00%3A00&_miax_filter_created%5Bmax%5D=2017-02-28+23%3A59%3A59&actions=&_miax_filter_month=2&_miax_filter_year=2017;
see also Securities Exchange Act Release No. 79543 (December 13,
2016), 81 FR 92901 (December 20, 2016) (File No. 10-227) (order
approving application of MIAX PEARL, LLC for registration as a
national securities exchange).
\5\ See Securities Exchange Act Release No. 87877 (December 31,
2019), 85 FR 738 (January 7, 2020) (SR-EMERALD-2019-39) (proposal to
adopt connectivity fees without providing access to MIAX Emerald's
affiliates, MIAX and MIAX Pearl, via a single shared connection).
\6\ See the Physical Connectivity Fees sections of the Cboe BYX
Exchange, Inc. (``BYX''), Cboe BZX Exchange, Inc. (``BYX''), Cboe
EDGA Exchange, Inc. (``EDGA''), and Cboe EDGX Exchange, Inc.
(``EDGX'', collectively with BYX, BZX, and EDGA, the ``Cboe Equity
Exchanges'') equity fee schedules (not providing that a single port
provides connectivity to each of Cboe Equity Exchanges).
\7\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
---------------------------------------------------------------------------
The Exchange began to operate on a single shared network with MIAX
when the Exchange commenced operations as a national securities
exchange on February 7, 2017.\8\ The Exchange and MIAX have operated on
a single shared network to provide Members with a single convenient set
of access points for both exchanges. Both the Exchange and MIAX offer
two methods of connectivity, 1Gb and 10Gb ULL connections. The 1Gb
connection services are supported by a discrete set of switches
providing 1Gb access ports to Members. The 10Gb ULL connection services
are supported by a second and mutually exclusive set of switches
providing 10Gb ULL access ports to Members. Today, both the 1Gb and
10Gb ULL shared extranet ports allow Members to use one connection to
access both exchanges, namely their trading platforms, market data
systems, test systems, and disaster recovery facilities.
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 80061 (February 17,
2017), 82 FR 11676 (February 24, 2017) (establishing MIAX Pearl Fee
Schedule and establishing that the MENI can also be configured to
provide network connectivity to the trading platforms, market data
systems, test systems, and disaster recovery facility of the MIAX
Pearl's affiliate, MIAX, via a single, shared connection).
---------------------------------------------------------------------------
As stated above, the shared network is not an unlimited resource
and its expansion is constrained by MIAX Pearl's and MIAX's ability to
provide fair and equitable access to all market participants of both
markets. The Exchange and MIAX continue to be able to meet the access
demands of new subscribers and satisfy the ongoing access demands of
existing subscribers. However, over time, due to the ever-increasing
connectivity demands, the Exchange now finds it necessary to bifurcate
10Gb ULL connectivity to the Exchange's and MIAX's Systems and
[[Page 79380]]
networks to be able to continue to meet ongoing and future 10Gb ULL
connectivity and access demands. Currently, the Exchange maintains
sufficient headroom to meet ongoing and future requests for 1Gb
connectivity. Therefore, the Exchange does not propose to alter 1Gb
connectivity and will continue to provide 1Gb connectivity over a
shared network and provide access to both the Exchange and MIAX over a
single 1Gb connection.
The Exchange has two categories of Members: Market Makers \9\ and
Electronic Exchange Members \10\ (``EEMs''). 10Gb ULL connectivity is
predominantly used by Market Makers, latency sensitive liquidity
removers, or those that require higher throughput (i.e., greater than
1Gb). 1Gb connectivity is predominately used by EEMs who are less
latency sensitive and tend to utilize a limited number of 1Gb
connections. These EEMs will continue to be able to use that single 1Gb
connection to access both the Exchange and MIAX. Certain EEMs use 10Gb
ULL connectivity, primarily where that EEM also acts as a Market Maker
either on the Exchange and/or MIAX and leverages that 10Gb ULL
connection to access both exchanges. Service bureaus \11\ also purchase
10Gb ULL connectivity and resell that connectivity to market
participants who may not have direct connectivity to the Exchange.
---------------------------------------------------------------------------
\9\ 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 these Rules.
See Exchange Rule 100.
\10\ 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 Exchange Rule 100.
\11\ Service bureaus provide access to market participants to
submit and execute orders on an exchange. On the Exchange, a Service
Bureau may be a Member. Some Members utilize a Service Bureau for
connectivity and that Service Bureau may not be a Member. Some
market participants utilize a Service Bureau who is a Member to
submit orders. Only Members may submit orders or quotes through 10Gb
ULL connectivity.
---------------------------------------------------------------------------
Unlike the switches that provide 1Gb connectivity, the switches
that provide 10Gb ULL connectivity have experienced a significant
decrease in the availability for additional 10Gb ULL connections on
each switch. This is mostly driven by the connectivity demands of
latency sensitive Members (e.g., Market Makers and liquidity removers)
that seek to maintain connectivity across multiple 10Gb ULL switches.
Such Members do not typically use a shared 10Gb ULL connection to reach
both the Exchange and MIAX due to related latency concerns. Instead,
those Members maintain dedicated separate 10Gb ULL connections for the
Exchange and separate dedicated 10Gb ULL connections for MIAX. This
results in a much higher 10Gb ULL usage per switch by those Members on
the existing shared 10Gb ULL network than would otherwise be needed if
the Exchange and MIAX had their own dedicated 10Gb ULL networks,
similar to that provided by other exchanges, including the Exchange's
and MIAX's affiliate, MIAX Emerald. Separation of the Exchange and MIAX
10Gb ULL networks would naturally lend itself to reduced 10Gb ULL port
consumption on each switch and, therefore, increased 10Gb ULL port
availability for current Members and new Members.
To date, the Exchange and MIAX have continued to add switches to
meet ongoing demand for 10Gb ULL connectivity. Unfortunately, that is
no longer sustainable because simply adding additional switches to
expand the current shared 10Gb ULL network would not continue to
alleviate the issue of limited available port connectivity. While it
would result in a gain in overall port availability, the existing
switches in use would continue to suffer from lack of port headroom
given many latency sensitive Members' needs for a presence on each
switch to reach both the Exchange and MIAX. This is because those
latency sensitive Members seek to have a presence on each switch to
maximize the probability of experiencing the best network performance.
Those Members routinely decide to rebalance the amount of orders and/or
messages over its various connections to ensure each connection is
operating with maximum efficiency. Simply adding switches to the
extranet is ineffective at resolving the port availability concerns on
the existing extranet since many of the latency sensitive Members are
unwilling to relocate their connections to a new switch due to the
potential detrimental performance impact. As such, the impact of adding
new switches and rebalancing ports is not effective. The Exchange has,
therefore, found that ongoing and continued rebalancing once additional
switches are added has had, and will continue to have, a diminishing
return on increasing available 10Gb ULL connectivity.
The below example illustrates how the bifurcation of the 10Gb ULL
network would lead to expanded access. This example is for illustrative
purposes only. Assume the shared network includes ten (10) switches and
each switch provides access via 24 10Gb ULL connections. For each
switch, the numerator represents the number of consumed 10Gb ULL
connections while the denominator represents the number of available
10Gb ULL connections. The ``Shared Network'' row illustrates the number
of consumed and available 10Gb ULL connections on each switch. The
usage of the ports on the shared network are roughly distributed 50% to
MIAX Options and 50% to MIAX Pearl Options. The ``Single MIAX Network''
and ``Single Pearl Network'' rows illustrate how the Exchange may
double its available 10Gb ULL connections simply by bifurcating the
Shared 10Gb ULL network.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Switch 1 2 3 4 5 6 7 8 9 10
--------------------------------------------------------------------------------------------------------------------------------------------------------
Shared Network................................................ 18/6 19/5 16/8 17/7 20/4 16/8 15/9 17/7 13/11 14/10
Single MIAX Network........................................... 9/15 9/15 8/16 8/16 10/14 8/16 7/17 8/16 6/18 7/17
Single Pearl Network.......................................... 9/15 10/14 8/16 9/15 10/14 8/16 8/16 9/15 7/17 7/17
--------------------------------------------------------------------------------------------------------------------------------------------------------
Based on its experience and expertise, the Exchange finds the most
practical way to increase connectivity availability on its switches is
to bifurcate the existing 10Gb ULL networks for the Exchange and MIAX
by migrating the exchange's connections from the shared network onto
their own set of switches. If a number of new Members seek to
participate in high frequency activity and require a port on each
switch, they could quickly consume the available ports on the shared
extranet. Further, if an existing Member seeks to temporarily double
their port connections while they transition to new network and/or
server infrastructure, they could consume the remaining available ports
on the shared extranet. The Exchange, therefore, believes it is
necessary and most efficient to bifurcate the Exchange
[[Page 79381]]
and MIAX 10Gb ULL networks so that both exchanges can continue to
satisfy ongoing and anticipated future requests for additional
connectivity allowing it to provide meaningful and fair access to each
market.
Bifurcating the Exchange and MIAX 10Gb ULL networks provides
benefits beyond the ability to continue to meet ongoing and anticipated
connectivity demands. For example, today if there is a problem on the
shared network, it could impact the operation of both the Exchange and
MIAX. As national securities exchanges, the Exchange and MIAX are
subject to Regulation Systems Compliance and Integrity (``Reg.
SCI'').\12\ Reg. SCI Rule 1001(a) requires that the Exchange and MIAX
establish, maintain, and enforce written policies and procedures
reasonably designed to ensure (among other things) that their Reg. SCI
systems have levels of capacity adequate to maintain the Exchange's and
MIAX's operational capabilities and promote the maintenance of fair and
orderly markets.\13\ By separating the 10Gb ULL networks, any potential
system issue would be limited to one exchange, narrowing the impact and
preventing unnecessary systems disruptions on the other exchange.
Bifurcating the networks supports the Reg. SCI obligations for MIAX
Pearl and MIAX in this regard by limiting any potential future risk of
a systems issue to one exchange and not impacting the operations or
market participants of the other exchange. Bifurcating the networks
also allows each exchange to evolve separately, potentially by using
different technology to cater to the unique demands of each exchange
and their market participants to meet future needs.
---------------------------------------------------------------------------
\12\ 17 CFR 242.1000-1007.
\13\ 17 CFR 242.1001(a).
---------------------------------------------------------------------------
The Exchange again notes that operating affiliated exchanges' over
separate networks is not new or novel. For example, the Exchange's
affiliate, MIAX Emerald, currently operates on a separate network.\14\
The Exchange notes that at least one other group of affiliated
exchanges operate on separate networks.\15\
---------------------------------------------------------------------------
\14\ See supra note 5.
\15\ See supra note 6.
---------------------------------------------------------------------------
The Exchange will file a separate proposal with the Commission
pursuant to Section 19(b)(3)(A)(ii) of the Act \16\ to: (i) Set forth
the applicable fees for the bifurcated 10Gb ULL network; (ii) remove
provisions in the Exchange fee schedule that provides for a shared 10Gb
ULL network; and (iii) specify that only the 1Gb network connection
will continue to be shared by both the Exchange and MIAX. The Exchange
will not bifurcate the 10Gb ULL network until it files a proposal to
set forth the applicable fees for immediate effectiveness pursuant to
Section 19(b)(3)(A)(ii) of the Act.\17\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
\17\ Id.
---------------------------------------------------------------------------
Implementation
Due to the technological changes associated with this proposed
change, the Exchange expects to bifurcate the Exchange and MIAX
networks in the first quarter of 2023, currently anticipated to be
January 23, 2023. The Exchange issued a Trading Alert on August 12,
2022 publicly announcing the planned network change and implementation
plan and dates to provide market participants adequate time to
prepare.\18\ Any changes to the January 23, 2023 implementation date
would be announced in a separate alert.
---------------------------------------------------------------------------
\18\ See MIAX Options and MIAX Pearl Options--Announce planned
network changes related to shared 10G ULL extranet, issued August
12, 2022, available at https://www.miaxoptions.com/alerts/2022/08/12/miax-options-and-miax-pearl-options-announce-planned-network-changes-related-0 (last visited November 17, 2022).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal to bifurcate 10Gb ULL
connectivity in the System networks for the Exchange and MIAX are
consistent with Section 6(b) of the Act \19\ in general, and furthers
the objectives of Section 6(b)(5) of the Act in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest and is not designed to permit unfair discrimination between
customers, issuers, brokers and dealers.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------
The Exchange believes that its proposal is consistent with the
requirements under Section 6(b)(5) \20\ of the Act that the Exchange's
proposed changes remove impediments to and perfect the mechanism of a
free and open market and a national market system. Operating affiliated
exchanges on their own dedicated, separate networks is not new or
novel. The Exchange notes that it and its affiliate, MIAX Emerald,
currently operate on separate networks.\21\ The Exchange is also aware
of at least on other group of affiliated exchanges also operate on
separate networks.\22\
---------------------------------------------------------------------------
\20\ Id.
\21\ See supra note 5.
\22\ See supra note 6.
---------------------------------------------------------------------------
The Exchange began to operate on a single shared network with MIAX
when MIAX Pearl commenced operations as a national securities exchange
on February 7, 2017.\23\ This shared network is not an unlimited
resource and its expansion is constrained by its ability to provide
fair and equitable access to all market participants. Due to the ever-
increasing connectivity demands, the Exchange finds it necessary to
bifurcate 10Gb ULL connectivity to the Exchange's and MIAX's Systems
and networks to be able to continue to meet ongoing and future 10Gb ULL
connectivity and access demands. Unlike switches for 1Gb connectivity,
switches dedicated to 10Gb ULL connectivity have experienced a
significant decrease in port headroom mostly driven by connectivity
demands of latency sensitive Members that seek to maintain connectivity
across multiple 10Gb ULL switches. Separation of the 10Gb ULL networks
of the Exchange and MIAX would naturally lend itself to reduced port
consumption and, therefore, increased port availability, allowing the
Exchange to continue to meet ongoing and anticipated requests for 10Gb
ULL connectivity. Therefore, the Exchange believes this proposal
removes impediments to and perfects the mechanism of a free and open
market and a national market system.
---------------------------------------------------------------------------
\23\ See Securities Exchange Act Release No. 80061 (February 17,
2017), 82 FR 11676 (February 24, 2017) (establishing MIAX Pearl Fee
Schedule and establishing that the MENI can also be configured to
provide network connectivity to the trading platforms, market data
systems, test systems, and disaster recovery facility of the MIAX
Pearl's affiliate, MIAX, via a single, shared connection).
---------------------------------------------------------------------------
Further, the proposed changes will allow the Exchange and MIAX to
adjust the connectivity and access to their Systems in order to ensure
that both markets are able to provide consistent and fair access to
their Members on non-discriminatory terms and ensure sufficient
capacity and headroom in their Systems. The Exchange and MIAX
constantly monitor their Systems' performance based on market
conditions and the potential need to make adjustments based on customer
demand. Accordingly, the Exchange's obligations under Section 6(b)(5)
of the Act,\24\ market participant demand, and market conditions are
key drivers of the System's architecture and expansion and, thus, the
Exchange believes simply adding more switches and not bifurcating the
10Gb ULL networks is not an appropriate mechanism to provide fair and
open access to the Exchange and MIAX.
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\24\ See 15 U.S.C. 78f(b).
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[[Page 79382]]
The Exchange and MIAX anticipate that they will continue to expand
their Systems and provide Members and other market participants with
additional access based on customer demand and in response to changing
market conditions. The Exchange represents that any expansion or
adjustments in the number of available switches for network access will
be conducted in a similar manner that ensures fair access to its
System. The Exchange will also continuously assess its connectivity
options and availability to ensure that they meet the needs of all
market participants seeking to access the Exchange and MIAX.
The Exchange believes that its proposal is consistent with the
requirements under Section 6(b)(5) of the Exchange Act that the
Exchange provide access on terms that are not unfairly discriminatory
and that the rules of an Exchange promote just and equitable principles
of trade.\25\ The Exchange believes the proposed changes promote just
and equitable principles of trade because the proposal to split the
Exchange's and MIAX's shared 10Gb ULL network connectivity will apply
equally to all market participants and Members of both exchanges. The
proposed bifurcation of the Exchange and MIAX 10Gb ULL network
connectivity will promote just and equitable principles of trade
because it will allow the Exchange and MIAX to be able to continue to
offer access to their Systems on terms that are not unfairly
discriminatory by continuing to meeting ongoing and anticipated
connectivity demands of all Members. The shared 10Gb ULL network is not
an unlimited resource of either MIAX Pearl or MIAX and its expansion is
constrained by its ability to provide fair and equitable access to all
market participants. The Exchange believes this proposal will allow the
Exchange and MIAX to continue to be able to meet the access demands of
new 10Gb ULL network connectivity subscribers and satisfy the ongoing
10Gb ULL connectivity access demands of existing subscribers.
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\25\ 15 U.S.C. 78f(b)(5).
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The Exchange believes its proposal to bifurcate the 10Gb ULL
networks of the Exchange and MIAX is not designed to permit unfair
discrimination between customers, issuers, brokers and dealers because
the Exchange believes that bifurcating 10Gb ULL connectivity between
the Exchange and MIAX is the most practical way to increase
connectivity availability on existing switches, providing fair and
consistent access to all Members and potential Members that require
10Gb ULL connectivity access. The proposed change would increase
available 10Gb ULL connectivity to all market participants, including
Market Makers, EEMs, and Service Bureaus, enabling the Exchange to
continue to meet market participants' current and anticipated
connectivity needs. The Exchange also notes that certain market
participants may choose to not purchase a 10Gb ULL connection to both
the Exchange and MIAX if they determine that purchasing connections to
both exchanges is not in their business interests or financially
beneficial. Similarly, Service Bureaus may also choose to not purchase
a 10Gb ULL connection to both the Exchange and MIAX if they determine
that there is not sufficient demand from their customers to connect to
one or both exchanges. Other Members, particularly EEMs, may choose to
purchase 1Gb connectivity instead and use that single connection to
access both the Exchange and MIAX.
As described in the above example, if new or existing Members deem
it necessary for them to utilize additional ports on each switch, those
Members will quickly consume the remaining available ports, leaving
very little or no additional ports open for other Members or new
Members to gain access. Further, if an existing Member seeks to
temporarily increase their 10Gb ULL ports connections while they
transition to a new network and/or server infrastructure, they could
consume the remaining available ports. In the Exchange's experience,
these types of scenarios have become more frequent, leading to the
Exchange's proposal to bifurcate the 10Gb ULL networks of the Exchange
and MIAX to be able to continue to provide fair access to all market
participants of both exchanges. The Exchange, therefore, believes its
proposal promotes just and equitable principles of trade, removes
impediments to and perfects the mechanism of a free and open market and
a national market system, and, in general protects investors and the
public interest because it will allow MIAX Pearl and MIAX to continue
to satisfy ongoing and anticipated future requests for additional 10Gb
ULL connectivity access to each market.
Lastly, the Exchange believes that its proposal is consistent with
the Exchange's capacity obligations pursuant Regulation SCI.\26\
Regulation SCI Rule 1001(a) requires that the Exchange and MIAX
establish, maintain, and enforce written policies and procedures
reasonably designed to ensure (among other things) that their
Regulation SCI systems have levels of capacity adequate to maintain the
Exchange's and MIAX's operational capabilities and promote the
maintenance of fair and orderly markets.\27\ The Exchange's proposal to
separate the 10Gb ULL networks of the Exchange and MIAX would mean that
any future potential System issue would be limited to only one
exchange, narrowing the impact and preventing unnecessary Systems
disruptions on the other exchange. This protects investors and the
public interest by potentially reducing market disruptions to either
MIAX Pearl or MIAX, depending on the issue, as opposed to disrupting
both markets from a single event on the shared network. The Exchange
believes this proposal supports the Regulation SCI obligations for the
Exchange and MIAX in by limiting any potential future risk of a systems
issue to one exchange and not impacting the operations or market
participants of the other exchange. Bifurcating the networks also
allows each exchange to evolve separately, potentially by using
different technology to cater to the unique demands of each exchange
and their market participants to meet future needs.
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\26\ 17 CFR 242.1000-1007.
\27\ 17 CFR 242.1001(a).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Specifically, the Exchange
believes the proposed changes will not impose any burden on intra-
market competition because the bifurcation of the Exchange and MIAX
10Gb ULL networks would affect all Members equally and ensure that the
Exchange continues to be able to satisfy all connectivity requests from
all Members as requested. The Exchange believes the proposed rule
changes will not impose any burden on inter-market competition. In
fact, the Exchange believes that not bifurcating the Exchange and MIAX
networks could have an adverse impact on inter-market competition
because not doing so could hamper the Exchange's ability to expand its
network to meet ongoing and future connectivity demand, which could, in
turn, limit its ability to compete for Memberships and order flow.
Separating its 10Gb ULL network from MIAX would enable the Exchange to
better compete with other exchanges by ensuring it can provide adequate
connectivity to existing and new Members, which may increase in ability
[[Page 79383]]
to compete for order flow and deepen its liquidity pool, improving the
overall quality of its market. Lastly, the Exchange believes its
proposal will not impose any burden on inter-market competition because
it would allow the Exchange to operate on a dedicated network in the
same manner as other affiliated exchanges who operate on dedicated
networks separate from their affiliates.\28\
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\28\ See supra notes 5 and 6.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \29\ and Rule 19b-4(f)(6) \30\
thereunder.
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\29\ 15 U.S.C. 78s(b)(3)(A).
\30\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-PEARL-2022-60 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-2022-60. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-PEARL-2022-60 and should be submitted on
or before January 17, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-28087 Filed 12-23-22; 8:45 am]
BILLING CODE P
