Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule for Purge Ports, 85941-85945 [2023-27067]

Download as PDF Federal Register / Vol. 88, No. 236 / Monday, December 11, 2023 / Notices subparagraph (f)(2) of Rule 19b–4 21 thereunder, because it establishes a due, fee, or other charge imposed by the Exchange. At any time within 60 days of the filing of such 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 under section 19(b)(2)(B) 22 of the Act to determine whether the proposed rule change 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: lotter on DSK11XQN23PROD with NOTICES1 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– NYSEAMER–2023–63 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–NYSEAMER–2023–63. 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 21 17 22 15 CFR 240.19b–4(f)(2). U.S.C. 78s(b)(2)(B). VerDate Sep<11>2014 17:35 Dec 08, 2023 Jkt 262001 Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–NYSEAMER–2023–63 and should be submitted on or before January 2, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–27065 Filed 12–8–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99089; File No. SR– EMERALD–2023–29] Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Fee Schedule for Purge Ports December 5, 2023. 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 22, 2023, 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 the MIAX Emerald Options Exchange Fee Schedule (the ‘‘Fee Schedule’’) to amend fees for Purge Ports.3 23 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 The proposed fee change is based on a recent proposal by Nasdaq Phlx LLC (‘‘Phlx’’) to adopt fees for purge ports. See Securities Exchange Act Release No. 97825 (June 30, 2023), 88 FR 43405 (July 7, 2023) (SR–Phlx–2023–28). 1 15 PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 85941 The text of the proposed rule change is available on the Exchange’s website at https://www.miaxglobal.com/markets/ us-options/emerald-options/rule-filings, at MIAX’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange is proposing to amend the fees for Purge Ports, which is a function enabling Market Makers 4 to cancel all open quotes or a subset of open quotes through a single cancel message. The Exchange currently provides Market Makers the option to purchase Purge Ports to assist in their quoting activity. Purge Ports provide Market Makers with the ability to send purge messages to the Exchange System.5 Purge Ports are not capable of sending or receiving any other type of messages or information. The use of Purge Ports is completely optional and no rule or regulation requires that a Market Maker utilize them. The Exchange initially filed the proposal on September 29, 2023 (EMERALD–2023–26) (the ‘‘Initial Proposal’’).6 On November 22, 2023, the Exchange withdrew the Initial Proposal and replaced it with this filing. Unlike other options exchanges that charge fees for Purge Ports on a per port basis,7 the Exchange assesses a flat fee 4 The term ‘‘Market Makers’’ refers to Lead Market Makers (‘‘LMMs’’), Primary Lead Market Makers (‘‘PLMMs’’), and Registered Market Makers (‘‘RMMs’’) collectively. See Exchange Rule 100. 5 The term ‘‘System’’ means the automated trading system used by the Exchange for the trading of securities. See Exchange Rule 100. 6 See Securities Exchange Act Release No. 98734 (October 12, 2023), 88 FR 71894 (October 18, 2023) (SR–EMERALD–2023–26). 7 See Cboe BXZ Exchange, Inc. (‘‘BZX’’) Options Fee Schedule, Options Logical Port Fees, Purge Ports ($750 per purge port per month); Cboe EDGX Exchange, Inc. (‘‘EDGX’’) Options Fee Schedule, E:\FR\FM\11DEN1.SGM Continued 11DEN1 85942 Federal Register / Vol. 88, No. 236 / Monday, December 11, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 of $1,500 per month, regardless of the number of Purge Ports utilized by a Market Maker. Currently, a Market Maker may request and be allocated two (2) Purge Ports per Matching Engine 8 to which it connects and not all Market Makers connect to all of the Exchange’s Matching Engines. The Exchange now proposes to amend the fee for Purge Ports to align more closely with other exchanges who charge on a per port basis by providing two (2) Purge Ports per Matching Engine for a monthly flat fee of $600 per month per Matching Engine. The only difference with a per port structure is that Market Makers receive two (2) Purge Ports per Matching Engine for the same proposed monthly fee, rather than being charged a separate fee for each Purge Port. The Exchange proposes to charge the proposed fee for Purge Ports per Matching Engine, instead on a per Purge Port basis, due to its System architecture which provides two (2) Purge Ports per Matching Engine for redundancy purposes. In addition, the proposed fee is lower than the comparable fee charged by competing exchanges that also charge on a per port basis, notwithstanding that the Exchange is providing up to two (2) Purge Ports for that same lower fee.9 Similar to a per port charge, Market Makers are able to select the Matching Engines that they want to connect to,10 based on the business needs of each Market Maker, and pay the applicable fee based on the number of Matching Engines and ports utilized. The Exchange believes that the proposed fee provides Market Makers with flexibility to control their Purge Port costs based on the number of Matching Engines Options Logical Port Fees, Purge Ports ($750 per purge port per month); Cboe Exchange, Inc. (‘‘Cboe’’) Fee Schedule ($850 per purge port per month). See also Nasdaq GEMX, Options 7, Pricing Schedule, Section 6.C.(3). Nasdaq GEMX, LLC (‘‘Nasdaq GEMX’’) assesses its members $1,250 per SQF Purge Port per month, subject to a monthly cap of $17,500 for SQF Purge Ports and SQF Ports, applicable to market makers. See also Securities Exchange Act Release No. 97825 (June 30, 2023), 88 FR 43405 (July 7, 2023) (SR–Phlx–2023–28). 8 A Matching Engine is a part of the Exchange’s electronic system that processes options quotes and trades on a symbol-by-symbol basis. Some matching engines will process option classes with multiple root symbols, and other matching engines will be dedicated to one single option root symbol (for example, options on SPY will be processed by one single matching engine that is dedicated only to SPY). A particular root symbol may only be assigned to a single designated matching engine. A particular root symbol may not be assigned to multiple matching engines. 9 See supra note 7. 10 The Exchange notes that each Matching Engine corresponds to a specified group of symbols. Certain Market Makers choose to only quote in certain symbols while other Market Makers choose to quote the entire market. VerDate Sep<11>2014 17:35 Dec 08, 2023 Jkt 262001 each Marker Maker elects to connect to based on each Market Maker’s business needs. * * * * * A logical port represents a port established by the Exchange within the Exchange’s System for trading and billing purposes. Each logical port grants a Member 11 the ability to accomplish a specific function, such as order entry, order cancellation, access to execution reports, and other administrative information. Purge Ports are designed to assist Market Makers 12 in the management of, and risk control over, their quotes, particularly if the firm is dealing with a large number of securities. For example, if a Market Maker detects market indications that may influence the execution potential of their quotes, the Market Maker may use Purge Ports to reduce uncertainty and to manage risk by purging all quotes in a number of securities. This allows Market Makers to seamlessly avoid unintended executions, while continuing to evaluate the market, their positions, and their risk levels. Purge Ports are used by Market Makers that conduct business activity that exposes them to a large amount of risk across a number of securities. Purge Ports enable Market Makers to cancel all open quotes, or a subset of open quotes through a single cancel message. The Exchange notes that Purge Ports increase efficiency of already existing functionality enabling the cancellation of quotes. The Exchange operates highly performant systems with significant throughput and determinism which allows participants to enter, update and cancel quotes at high rates. Market Makers may currently cancel individual quotes through the existing functionality, such as through the use of a mass cancel message by which a Market Maker may request that the Exchange remove all or a subset of its quotations and block all or a subset of its new inbound quotations.13 Other than Purge Ports being a dedicated line for cancelling quotations, Purge Ports operate in the same manner as a mass cancel message being sent over a different type of port. For example, like Purge Ports, mass cancellations sent over a logical port may be done at either the firm or MPID level. As a result, 11 The term ‘‘Member’’ means an individual or organization approved to exercise the trading rights associated with a Trading Permit. Members are deemed ‘‘members’’ under the Exchange Act. See Exchange Rule 100. 12 Members seeking to become registered as a Market Maker must comply with the applicable requirements of Chapter VI of the Exchange’s Rules. 13 See Exchange Rule 519C(a) and (b). PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 Market Makers can currently cancel quotes in rapid succession across their existing logical ports 14 or through a single cancel message, all open quotes or a subset of open quotes. Similarly, Market Makers may also use cancel-on-disconnect control when they experience a disruption in connection to the Exchange to automatically cancel all quotes, as configured or instructed by the Member or Market Maker.15 In addition, the Exchange already provides similar ability to mass cancel quotes through the Exchange’s risk controls, which are offered at no charge and enables Market Makers to establish pre-determined levels of risk exposure, and can be used to cancel all open quotes.16 Accordingly, the Exchange believes that the Purge Ports provide an efficient option as an alternative to already available services and enhance the Market Maker’s ability to manage their risk. The Exchange believes that market participants benefit from a dedicated purge mechanism for specific Market Makers and to the market as a whole. Market Makers will have the benefit of efficient risk management and purge tools. The market will benefit from potential increased quoting and liquidity as Market Makers may use Purge Ports to manage their risk more robustly. Only Market Makers that request Purge Ports would be subject to the proposed fees, and other Market Makers can continue to operate in exactly the same manner as they do today without dedicated Purge Ports, but with the additional purging capabilities described above. Implementation Date The proposed fees are immediately effective. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with section 6(b) of the Act,17 in general, and furthers the objectives of section 6(b)(5) of the Act,18 in particular, in that it is not designed to permit unfair discrimination among customers, brokers, or dealers. The Exchange also believes that its proposed fee is consistent with section 6(b)(4) of the 14 Current Exchange port functionality supports cancelation rates that exceed one thousand messages per second and the Exchange’s research indicates that certain market participants rely on such functionality and at times utilize such cancelation rates. 15 See Exchange Rule 519C (c). 16 See Exchange Rule 532. 17 15 U.S.C. 78f(b). 18 15 U.S.C. 78f(b)(5). E:\FR\FM\11DEN1.SGM 11DEN1 Federal Register / Vol. 88, No. 236 / Monday, December 11, 2023 / Notices Act 19 because it represents an equitable allocation of reasonable dues, fees and other charges among market participants. The Exchange supports the proposed fee change with the below justification because a similar justification was used in a recent 2023 proposal filed with the Commission by another national securities exchange, Phlx, to adopt fees for purge ports, which the Commission deemed acceptable by not suspending that filing during the applicable 60-day review period.20 In fact, the same justification Phlx utilized was also used in similar recent proposals to adopt fees for purge ports by two of Phlx’s affiliated exchanges.21 Therefore, the Exchange utilized the below justification based on this recent Commission precedent from approximately one month ago. The Exchange believes that the proposed rule change would promote just and equitable principles of trade and remove impediments to and perfect the mechanism of a free and open market because offering Market Makers optional service and flexible fee structures which promotes choice, flexibility, efficiency, and competition. The Exchange believes Purge Ports enhance Market Makers’ ability to manage quotes, which would, in turn, improve their risk controls to the benefit of all market participants. The Exchange believes that Purge Ports foster cooperation and coordination with persons engaged in facilitating transactions in securities because designating Purge Ports for purge messages may encourage better use of such ports. This may, concurrent with the ports that carry quotes and other information necessary for market making activities, enable more efficient, as well as fair and reasonable, use of Market Makers’ resources. Similar connectivity and functionality is offered by options exchanges, including the Exchange’s own affiliated options exchanges, and other equities 19 15 U.S.C. 78f(b)(4). supra note 3. 21 See Securities Exchange Act Release Nos. 98770 (October 18, 2023), 88 FR 73065 (October 24, 2023) (SR–BX–2023–026); and 98768 (October 18, 2023), 88 FR 73056 (October 24, 2023) (SR– NASDAQ–2023–041). While the Exchange included a cos-based justification in a related filing to amend fees for connectivity, it does not believe a costbased justification is require here because Purge Ports are optional functionality and no cost-based justification was provided by Phlx or any of its affiliates in their same filings to adopt fees for purge ports. Nor does the Commission Staff’s own fee guidance include such a requirement. See Staff Guidance on SRO Rule Filings Relating to Fees (May 21, 2019), available at https://www.sec.gov/ tm/staff-guidance-sro-rule-filings-fees. lotter on DSK11XQN23PROD with NOTICES1 20 See VerDate Sep<11>2014 17:35 Dec 08, 2023 Jkt 262001 exchanges.22 The Exchange believes that proper risk management, including the ability to efficiently cancel multiple quotes quickly when necessary, is similarly valuable to firms that trade in the equities market, including Market Makers that have heightened quoting obligations that are not applicable to other market participants. Purge Ports do not relieve Market Makers of their quoting obligations or firm quote obligations under Regulation NMS Rule 602.23 Specifically, any interest that is executable against a Member’s or Market Maker’s quotes that is received by the Exchange prior to the time of the removal of quotes request will automatically execute. Market Makers that purge their quotes will not be relieved of the obligation to provide continuous two- sided quotes on a daily basis, nor will it prohibit the Exchange from taking disciplinary action against a Market Maker for failing to meet their continuous quoting obligation each trading day.24 The Exchange is not the only exchange to offer this functionality and to charge associated fees.25 The Exchange believes the proposed fee for Purge Ports is reasonable because it is lower than the fees currently charged by other exchanges for similar port functionality. For example, BZX and EDGX charge a fee of $750 per purge port per month, Cboe charges $850 per purge port per month, Nasdaq GEMX assesses its members $1,250 per SQF Purge Port per month, subject to a monthly cap of $17,500 for SQF Purge Ports and SQF Ports.26 The Exchange believes it is reasonable to charge $600 per month for Purge Ports as proposed because such ports were specially developed to allow Market Makers to send a single message to cancel multiple quotes, thereby assisting firms in effectively managing risk. The Exchange also believes that a Member that chooses to utilize Purge Ports may, in the future, reduce their need for additional ports by consolidating cancel messages to their dedicated Purge Port and thus freeing up some capacity of the existing logical ports and, therefore, allowing for 22 See supra notes 3 and 7. See also Securities Exchange Act Release No. 77613 (April 13, 2016), 81 FR 23023 (April 19, 2016). See also Securities Exchange Act Release Nos. 79956 (February 3, 2017), 82 FR 10102 (February 9, 2017) (SR– BatsBZX–2017–05); 79957 (February 3, 2017), 82 FR 10070 (February 9, 2017) (SR–BatsEDGX–2017–07); 83201 (May 9, 2018), 83 FR 22546 (May 15, 2018) (SR–C2–2018–006). 23 See Exchange Rule 604. See also generally Chapter VI of the Exchange’s Rules. 24 Id. 25 See supra notes 3 and 7. 26 See supra note 7. PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 85943 increased message traffic without paying for additional logical ports. Purge Ports provide the ability to cancel multiple quotes with a single message over a dedicated port, and, therefore, may create efficiencies for firms and provide a more efficient solution for them based on their risk management needs. In addition, Purge Port requests may cancel quotes submitted over numerous ports and contain added functionality to purge only a subset of these quotes. Effective risk management is important both for individual market participants that choose to utilize risk features provided by the Exchange, as well as for the market in general. As a result, the Exchange believes that it is appropriate to charge fees for such functionality as doing so aids in the maintenance of a fair and orderly market. The Exchange also believes that its ability to set fees for Purge Ports is subject to significant substitution-based forces because Market Makers are able to rely on currently available services both free and those they receive when using existing trading protocols. If the value of the efficiency introduced through the Purge Port functionality is not worth the proposed fees, Market Makers will simply continue to rely on the existing functionality and not pay for Purge Ports. In that regard, Market Makers may currently cancel individual quotes through the existing functionality, such as through the use of a mass cancel message by which a Market Maker may request that the Exchange remove all or a subset of its quotations and block all or a subset of its new inbound quotations. Already Market Makers can also cancel quotes individually and by utilizing Exchange protocols that allow them to develop proprietary systems that can send cancel messages at a high rate.27 In addition, the Exchange already provides similar ability to mass cancel quotes through the Exchange’s risk controls, which are offered at no charge that enables Market Makers to establish pre-determined levels of risk exposure, and can be used to cancel all open quotes.28 Further, like Purge Ports, Members may also cancel all or a subset of its orders in the System, by firm name or by MPID, over their existing ports, or by 27 Current Exchange port functionality supports cancelation rates that exceed one thousand messages per second and the Exchange’s research indicates that certain Participants rely on such functionality and at times utilize such cancelation rates. 28 See Exchange Rule 532. E:\FR\FM\11DEN1.SGM 11DEN1 lotter on DSK11XQN23PROD with NOTICES1 85944 Federal Register / Vol. 88, No. 236 / Monday, December 11, 2023 / Notices requesting the Exchange staff to effect such cancellations.29 Similarly, Market Makers may use cancel-on-disconnect control when they experience a disruption in their connection to the Exchange and immediately cancel all pending quotes in the Exchange’s System.30 Finally, this existing purging functionality will allow Market Makers to achieve essentially the same outcome in canceling quotes as they would by utilizing the Purge Ports. Accordingly, the Exchange believes that the proposed Purge Port fee is reasonable because it is related to the efficiency of Purge Ports and to other means and services already available which are either free or already a part of a fee assessed to the Market Maker for existing connectivity. Accordingly, because Purge Ports provide additional optional functionality, excessive fees would simply serve to reduce or eliminate demand for this optional product. The Exchange also believes that offering Purge Ports at the Matching Engine level promotes risk management across the industry, and thereby facilitates investor protection. Some market participants, in particular the larger firms, could and do build similar risk functionality (as described above) in their trading systems that permit the flexible cancellation of quotes entered on the Exchange at a high rate. Offering Matching Engine level protections ensures that such functionality is widely available to all firms, including smaller firms that may otherwise not be willing to incur the costs and development work necessary to support their own customized mass cancel functionality. As noted above, the Exchange is not the only exchange to offer dedicated Purge Ports, and the proposed rate is lower than that charged by other exchanges for similar functionality. The Exchange also believes that moving to a per Matching Engine fee is reasonable due to the Exchange’s architecture that provides it the ability to provide two (2) Purge Ports per Matching Engine for a fee that would still be lower than competing exchanges that charge on a per port basis. Generally speaking, restricting the Exchange’s ability to charge fees for these services discourages innovation and competition. Specifically in this case, the Exchange’s inability to offer similar services to those offered by other exchanges, and charge reasonable and equitable fees for such services, would put the Exchange at a significant 29 See 30 See Exchange Rule 519C(a). Exchange Rule 519C(c). VerDate Sep<11>2014 17:35 Dec 08, 2023 Jkt 262001 competitive disadvantage and, therefore, serve to restrict competition in the market—especially when other exchanges assess comparable fees higher than those proposed by the Exchange. The Exchange believes that the proposed Purge Port fees are equitable because the proposed Purge Ports are completely voluntary as they relate solely to optional risk management functionality. The Exchange also believes that the proposed amendments to its Fee Schedule are not unfairly discriminatory because they will apply uniformly to all Market Makers that choose to use the optional Purge Ports. Purge Ports are completely voluntary and, as they relate solely to optional risk management functionality, no Market Maker is required or under any regulatory obligation to utilize them. All Market Makers that voluntarily select this service option will be charged the same amount for the same services. All Market Makers have the option to select any connectivity option, and there is no differentiation among Market Makers with regard to the fees charged for the services offered by the Exchange. 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. Purge Ports are completely voluntary and are available to all Market Makers on an equal basis at the same cost. While the Exchange believes that Purge Ports provide a valuable service, Market Makers can choose to purchase, or not purchase, these ports based on their own determination of the value and their business needs. No Market Maker is required or under any regulatory obligation to utilize Purge Ports. Accordingly, the Exchange believes that Purge Ports offer appropriate risk management functionality to firms that trade on the Exchange without imposing an unnecessary or inappropriate burden on competition. Furthermore, the Exchange operates in a highly competitive environment, and its ability to price the Purge Ports is constrained by competition among exchanges that offer similar functionality. As discussed, there are currently a number of similar offers available to market participants for higher fees at other exchanges. Proposing fees that are excessively higher than established fees for similar functionality would simply serve to reduce demand for the Purge Ports, which as discussed, market participants PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 are under no obligation to utilize. It could also cause firms to shift trading to other exchanges that offer similar functionality at a lower cost, adversely impacting the overall trading on the Exchange and reducing market share. In this competitive environment, potential purchasers are free to choose which, if any, similar product to purchase to satisfy their need for risk management. As a result, the Exchange believes this proposed rule change permits fair competition among national securities exchanges. The Exchange also does not believe the proposal would cause any unnecessary or inappropriate burden on intermarket competition as other exchanges are free to introduce their own purge port functionality and lower their prices to better compete with the Exchange’s offering. The Exchange does not believe the proposed rule change would cause any unnecessary or inappropriate burden on intramarket competition. Particularly, the proposal would apply uniformly to any market participant, in that it does not differentiate between Market Makers. The proposal would allow any interested Market Makers to purchase Purge Port functionality based on their business needs. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange received one comment letter on the proposal.31 This comment letter was submitted not only on this proposal, but also the proposals by the Exchange and its affiliates to amend fees for 10Gb ULL connectivity and certain ports. Overall, the Exchange believes that the issues raised by the commenter are not germane to this proposal because they apply primarily to the other fee filings. Also, the commenter’s raised concerns with the current environment surrounding exchange non-transaction fee proposals that should be addressed by the Commission through rule making, or Congress, more holistically and not through an individual exchange fee filings. However, the commenter does raise one issue that concerns this proposal whereby it asserts that the Exchange’s comparison to fees charged by other exchanges for similar ports is irrelevant and unpersuasive. The core of the issue raised is regarding the cost to connect to one exchange compared to the cost to connect to others. A thorough 31 See letter from Thomas M. Merritt, Deputy General Counsel, Virtu Financial, Inc. (‘‘Virtu’’), to Vanessa Countryman, Secretary, Commission, dated November 8, 2023. E:\FR\FM\11DEN1.SGM 11DEN1 Federal Register / Vol. 88, No. 236 / Monday, December 11, 2023 / Notices response to this comment would require the Exchange to obtain competitively sensitive information about other exchange architecture and how their members connect. The Exchange is not privy to this information. Further, the commenter compares the Exchange’s proposed rate to other exchanges that offer purge port functionality across all matching engines for a single fee, but fails to provide the same comparison to other exchanges that charge for purge functionality like proposed here. The Exchange does not have insight into the technical architecture of other exchanges so it is difficult to ascertain the number of purge ports a firm would need to connect to another exchanges entire market. Therefore, the Exchange is limited to comparing its proposed fee to other exchanges’ purge port fees as listed in their fee schedules. 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,32 and Rule 19b–4(f)(2) 33 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: lotter on DSK11XQN23PROD with NOTICES1 Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– EMERALD–2023–29 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. 32 15 33 17 U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). VerDate Sep<11>2014 17:35 Dec 08, 2023 All submissions should refer to file number SR–EMERALD–2023–29. 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–EMERALD–2023–29 and should be submitted on or before January 2, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.34 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–27067 Filed 12–8–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99081; File No. SR– NASDAQ–2023–045] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To List and Trade Shares of the iShares Ethereum Trust Under Nasdaq Rule 5711(d) (Commodity-Based Trust Shares) December 5, 2023. 34 17 Jkt 262001 PO 00000 CFR 200.30–3(a)(12). Frm 00080 Fmt 4703 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 21, 2023, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to a proposed rule change to list and trade shares of the iShares Ethereum Trust (the ‘‘Trust’’) under Nasdaq Rule 5711(d) (‘‘Commodity-Based Trust Shares’’). The shares of the Trust are referred to herein as the ‘‘Shares.’’ 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. 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 list and trade the Shares under Nasdaq Rule 5711(d),3 which governs the listing and trading of Commodity-Based Trust Shares on the Exchange. iShares Delaware Trust Sponsor LLC, a Delaware limited liability company and an indirect subsidiary of BlackRock, Inc. (‘‘BlackRock’’), is the sponsor of the Trust (the ‘‘Sponsor’’). The Shares will 1 15 Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 Sfmt 4703 85945 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 The Commission approved Nasdaq Rule 5711 in Securities Exchange Act Release No. 66648 (March 23, 2012), 77 FR 19428 (March 30, 2012) (SR– NASDAQ–2012–013). 2 17 E:\FR\FM\11DEN1.SGM 11DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 88, Number 236 (Monday, December 11, 2023)]
[Notices]
[Pages 85941-85945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27067]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99089; File No. SR-EMERALD-2023-29]


Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
the Fee Schedule for Purge Ports

December 5, 2023.
    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 22, 2023, 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.
---------------------------------------------------------------------------

    \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 proposes to amend the MIAX Emerald Options Exchange 
Fee Schedule (the ``Fee Schedule'') to amend fees for Purge Ports.\3\
---------------------------------------------------------------------------

    \3\ The proposed fee change is based on a recent proposal by 
Nasdaq Phlx LLC (``Phlx'') to adopt fees for purge ports. See 
Securities Exchange Act Release No. 97825 (June 30, 2023), 88 FR 
43405 (July 7, 2023) (SR-Phlx-2023-28).
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxglobal.com/markets/us-options/emerald-options/rule-filings, at MIAX's principal office, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to amend the fees for Purge Ports, which 
is a function enabling Market Makers \4\ to cancel all open quotes or a 
subset of open quotes through a single cancel message. The Exchange 
currently provides Market Makers the option to purchase Purge Ports to 
assist in their quoting activity. Purge Ports provide Market Makers 
with the ability to send purge messages to the Exchange System.\5\ 
Purge Ports are not capable of sending or receiving any other type of 
messages or information. The use of Purge Ports is completely optional 
and no rule or regulation requires that a Market Maker utilize them.
---------------------------------------------------------------------------

    \4\ The term ``Market Makers'' refers to Lead Market Makers 
(``LMMs''), Primary Lead Market Makers (``PLMMs''), and Registered 
Market Makers (``RMMs'') collectively. See Exchange Rule 100.
    \5\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
---------------------------------------------------------------------------

    The Exchange initially filed the proposal on September 29, 2023 
(EMERALD-2023-26) (the ``Initial Proposal'').\6\ On November 22, 2023, 
the Exchange withdrew the Initial Proposal and replaced it with this 
filing.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 98734 (October 12, 
2023), 88 FR 71894 (October 18, 2023) (SR-EMERALD-2023-26).
---------------------------------------------------------------------------

    Unlike other options exchanges that charge fees for Purge Ports on 
a per port basis,\7\ the Exchange assesses a flat fee

[[Page 85942]]

of $1,500 per month, regardless of the number of Purge Ports utilized 
by a Market Maker. Currently, a Market Maker may request and be 
allocated two (2) Purge Ports per Matching Engine \8\ to which it 
connects and not all Market Makers connect to all of the Exchange's 
Matching Engines.
---------------------------------------------------------------------------

    \7\ See Cboe BXZ Exchange, Inc. (``BZX'') Options Fee Schedule, 
Options Logical Port Fees, Purge Ports ($750 per purge port per 
month); Cboe EDGX Exchange, Inc. (``EDGX'') Options Fee Schedule, 
Options Logical Port Fees, Purge Ports ($750 per purge port per 
month); Cboe Exchange, Inc. (``Cboe'') Fee Schedule ($850 per purge 
port per month). See also Nasdaq GEMX, Options 7, Pricing Schedule, 
Section 6.C.(3). Nasdaq GEMX, LLC (``Nasdaq GEMX'') assesses its 
members $1,250 per SQF Purge Port per month, subject to a monthly 
cap of $17,500 for SQF Purge Ports and SQF Ports, applicable to 
market makers. See also Securities Exchange Act Release No. 97825 
(June 30, 2023), 88 FR 43405 (July 7, 2023) (SR-Phlx-2023-28).
    \8\ A Matching Engine is a part of the Exchange's electronic 
system that processes options quotes and trades on a symbol-by-
symbol basis. Some matching engines will process option classes with 
multiple root symbols, and other matching engines will be dedicated 
to one single option root symbol (for example, options on SPY will 
be processed by one single matching engine that is dedicated only to 
SPY). A particular root symbol may only be assigned to a single 
designated matching engine. A particular root symbol may not be 
assigned to multiple matching engines.
---------------------------------------------------------------------------

    The Exchange now proposes to amend the fee for Purge Ports to align 
more closely with other exchanges who charge on a per port basis by 
providing two (2) Purge Ports per Matching Engine for a monthly flat 
fee of $600 per month per Matching Engine. The only difference with a 
per port structure is that Market Makers receive two (2) Purge Ports 
per Matching Engine for the same proposed monthly fee, rather than 
being charged a separate fee for each Purge Port. The Exchange proposes 
to charge the proposed fee for Purge Ports per Matching Engine, instead 
on a per Purge Port basis, due to its System architecture which 
provides two (2) Purge Ports per Matching Engine for redundancy 
purposes. In addition, the proposed fee is lower than the comparable 
fee charged by competing exchanges that also charge on a per port 
basis, notwithstanding that the Exchange is providing up to two (2) 
Purge Ports for that same lower fee.\9\
---------------------------------------------------------------------------

    \9\ See supra note 7.
---------------------------------------------------------------------------

    Similar to a per port charge, Market Makers are able to select the 
Matching Engines that they want to connect to,\10\ based on the 
business needs of each Market Maker, and pay the applicable fee based 
on the number of Matching Engines and ports utilized. The Exchange 
believes that the proposed fee provides Market Makers with flexibility 
to control their Purge Port costs based on the number of Matching 
Engines each Marker Maker elects to connect to based on each Market 
Maker's business needs.
---------------------------------------------------------------------------

    \10\ The Exchange notes that each Matching Engine corresponds to 
a specified group of symbols. Certain Market Makers choose to only 
quote in certain symbols while other Market Makers choose to quote 
the entire market.
---------------------------------------------------------------------------

* * * * *
    A logical port represents a port established by the Exchange within 
the Exchange's System for trading and billing purposes. Each logical 
port grants a Member \11\ the ability to accomplish a specific 
function, such as order entry, order cancellation, access to execution 
reports, and other administrative information.
---------------------------------------------------------------------------

    \11\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
---------------------------------------------------------------------------

    Purge Ports are designed to assist Market Makers \12\ in the 
management of, and risk control over, their quotes, particularly if the 
firm is dealing with a large number of securities. For example, if a 
Market Maker detects market indications that may influence the 
execution potential of their quotes, the Market Maker may use Purge 
Ports to reduce uncertainty and to manage risk by purging all quotes in 
a number of securities. This allows Market Makers to seamlessly avoid 
unintended executions, while continuing to evaluate the market, their 
positions, and their risk levels. Purge Ports are used by Market Makers 
that conduct business activity that exposes them to a large amount of 
risk across a number of securities. Purge Ports enable Market Makers to 
cancel all open quotes, or a subset of open quotes through a single 
cancel message. The Exchange notes that Purge Ports increase efficiency 
of already existing functionality enabling the cancellation of quotes.
---------------------------------------------------------------------------

    \12\ Members seeking to become registered as a Market Maker must 
comply with the applicable requirements of Chapter VI of the 
Exchange's Rules.
---------------------------------------------------------------------------

    The Exchange operates highly performant systems with significant 
throughput and determinism which allows participants to enter, update 
and cancel quotes at high rates. Market Makers may currently cancel 
individual quotes through the existing functionality, such as through 
the use of a mass cancel message by which a Market Maker may request 
that the Exchange remove all or a subset of its quotations and block 
all or a subset of its new inbound quotations.\13\ Other than Purge 
Ports being a dedicated line for cancelling quotations, Purge Ports 
operate in the same manner as a mass cancel message being sent over a 
different type of port. For example, like Purge Ports, mass 
cancellations sent over a logical port may be done at either the firm 
or MPID level. As a result, Market Makers can currently cancel quotes 
in rapid succession across their existing logical ports \14\ or through 
a single cancel message, all open quotes or a subset of open quotes.
---------------------------------------------------------------------------

    \13\ See Exchange Rule 519C(a) and (b).
    \14\ Current Exchange port functionality supports cancelation 
rates that exceed one thousand messages per second and the 
Exchange's research indicates that certain market participants rely 
on such functionality and at times utilize such cancelation rates.
---------------------------------------------------------------------------

    Similarly, Market Makers may also use cancel-on-disconnect control 
when they experience a disruption in connection to the Exchange to 
automatically cancel all quotes, as configured or instructed by the 
Member or Market Maker.\15\ In addition, the Exchange already provides 
similar ability to mass cancel quotes through the Exchange's risk 
controls, which are offered at no charge and enables Market Makers to 
establish pre-determined levels of risk exposure, and can be used to 
cancel all open quotes.\16\ Accordingly, the Exchange believes that the 
Purge Ports provide an efficient option as an alternative to already 
available services and enhance the Market Maker's ability to manage 
their risk.
---------------------------------------------------------------------------

    \15\ See Exchange Rule 519C (c).
    \16\ See Exchange Rule 532.
---------------------------------------------------------------------------

    The Exchange believes that market participants benefit from a 
dedicated purge mechanism for specific Market Makers and to the market 
as a whole. Market Makers will have the benefit of efficient risk 
management and purge tools. The market will benefit from potential 
increased quoting and liquidity as Market Makers may use Purge Ports to 
manage their risk more robustly. Only Market Makers that request Purge 
Ports would be subject to the proposed fees, and other Market Makers 
can continue to operate in exactly the same manner as they do today 
without dedicated Purge Ports, but with the additional purging 
capabilities described above.
Implementation Date
    The proposed fees are immediately effective.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\17\ in general, and furthers the 
objectives of section 6(b)(5) of the Act,\18\ in particular, in that it 
is not designed to permit unfair discrimination among customers, 
brokers, or dealers. The Exchange also believes that its proposed fee 
is consistent with section 6(b)(4) of the

[[Page 85943]]

Act \19\ because it represents an equitable allocation of reasonable 
dues, fees and other charges among market participants.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange supports the proposed fee change with the below 
justification because a similar justification was used in a recent 2023 
proposal filed with the Commission by another national securities 
exchange, Phlx, to adopt fees for purge ports, which the Commission 
deemed acceptable by not suspending that filing during the applicable 
60-day review period.\20\ In fact, the same justification Phlx utilized 
was also used in similar recent proposals to adopt fees for purge ports 
by two of Phlx's affiliated exchanges.\21\ Therefore, the Exchange 
utilized the below justification based on this recent Commission 
precedent from approximately one month ago.
---------------------------------------------------------------------------

    \20\ See supra note 3.
    \21\ See Securities Exchange Act Release Nos. 98770 (October 18, 
2023), 88 FR 73065 (October 24, 2023) (SR-BX-2023-026); and 98768 
(October 18, 2023), 88 FR 73056 (October 24, 2023) (SR-NASDAQ-2023-
041). While the Exchange included a cos-based justification in a 
related filing to amend fees for connectivity, it does not believe a 
cost-based justification is require here because Purge Ports are 
optional functionality and no cost-based justification was provided 
by Phlx or any of its affiliates in their same filings to adopt fees 
for purge ports. Nor does the Commission Staff's own fee guidance 
include such a requirement. See Staff Guidance on SRO Rule Filings 
Relating to Fees (May 21, 2019), available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change would promote 
just and equitable principles of trade and remove impediments to and 
perfect the mechanism of a free and open market because offering Market 
Makers optional service and flexible fee structures which promotes 
choice, flexibility, efficiency, and competition. The Exchange believes 
Purge Ports enhance Market Makers' ability to manage quotes, which 
would, in turn, improve their risk controls to the benefit of all 
market participants. The Exchange believes that Purge Ports foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities because designating Purge Ports for purge 
messages may encourage better use of such ports. This may, concurrent 
with the ports that carry quotes and other information necessary for 
market making activities, enable more efficient, as well as fair and 
reasonable, use of Market Makers' resources. Similar connectivity and 
functionality is offered by options exchanges, including the Exchange's 
own affiliated options exchanges, and other equities exchanges.\22\ The 
Exchange believes that proper risk management, including the ability to 
efficiently cancel multiple quotes quickly when necessary, is similarly 
valuable to firms that trade in the equities market, including Market 
Makers that have heightened quoting obligations that are not applicable 
to other market participants.
---------------------------------------------------------------------------

    \22\ See supra notes 3 and 7. See also Securities Exchange Act 
Release No. 77613 (April 13, 2016), 81 FR 23023 (April 19, 2016). 
See also Securities Exchange Act Release Nos. 79956 (February 3, 
2017), 82 FR 10102 (February 9, 2017) (SR-BatsBZX-2017-05); 79957 
(February 3, 2017), 82 FR 10070 (February 9, 2017) (SR-BatsEDGX-
2017-07); 83201 (May 9, 2018), 83 FR 22546 (May 15, 2018) (SR-C2-
2018-006).
---------------------------------------------------------------------------

    Purge Ports do not relieve Market Makers of their quoting 
obligations or firm quote obligations under Regulation NMS Rule 
602.\23\ Specifically, any interest that is executable against a 
Member's or Market Maker's quotes that is received by the Exchange 
prior to the time of the removal of quotes request will automatically 
execute. Market Makers that purge their quotes will not be relieved of 
the obligation to provide continuous two- sided quotes on a daily 
basis, nor will it prohibit the Exchange from taking disciplinary 
action against a Market Maker for failing to meet their continuous 
quoting obligation each trading day.\24\
---------------------------------------------------------------------------

    \23\ See Exchange Rule 604. See also generally Chapter VI of the 
Exchange's Rules.
    \24\ Id.
---------------------------------------------------------------------------

    The Exchange is not the only exchange to offer this functionality 
and to charge associated fees.\25\ The Exchange believes the proposed 
fee for Purge Ports is reasonable because it is lower than the fees 
currently charged by other exchanges for similar port functionality. 
For example, BZX and EDGX charge a fee of $750 per purge port per 
month, Cboe charges $850 per purge port per month, Nasdaq GEMX assesses 
its members $1,250 per SQF Purge Port per month, subject to a monthly 
cap of $17,500 for SQF Purge Ports and SQF Ports.\26\
---------------------------------------------------------------------------

    \25\ See supra notes 3 and 7.
    \26\ See supra note 7.
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to charge $600 per month for 
Purge Ports as proposed because such ports were specially developed to 
allow Market Makers to send a single message to cancel multiple quotes, 
thereby assisting firms in effectively managing risk. The Exchange also 
believes that a Member that chooses to utilize Purge Ports may, in the 
future, reduce their need for additional ports by consolidating cancel 
messages to their dedicated Purge Port and thus freeing up some 
capacity of the existing logical ports and, therefore, allowing for 
increased message traffic without paying for additional logical ports. 
Purge Ports provide the ability to cancel multiple quotes with a single 
message over a dedicated port, and, therefore, may create efficiencies 
for firms and provide a more efficient solution for them based on their 
risk management needs. In addition, Purge Port requests may cancel 
quotes submitted over numerous ports and contain added functionality to 
purge only a subset of these quotes. Effective risk management is 
important both for individual market participants that choose to 
utilize risk features provided by the Exchange, as well as for the 
market in general. As a result, the Exchange believes that it is 
appropriate to charge fees for such functionality as doing so aids in 
the maintenance of a fair and orderly market.
    The Exchange also believes that its ability to set fees for Purge 
Ports is subject to significant substitution-based forces because 
Market Makers are able to rely on currently available services both 
free and those they receive when using existing trading protocols. If 
the value of the efficiency introduced through the Purge Port 
functionality is not worth the proposed fees, Market Makers will simply 
continue to rely on the existing functionality and not pay for Purge 
Ports. In that regard, Market Makers may currently cancel individual 
quotes through the existing functionality, such as through the use of a 
mass cancel message by which a Market Maker may request that the 
Exchange remove all or a subset of its quotations and block all or a 
subset of its new inbound quotations. Already Market Makers can also 
cancel quotes individually and by utilizing Exchange protocols that 
allow them to develop proprietary systems that can send cancel messages 
at a high rate.\27\ In addition, the Exchange already provides similar 
ability to mass cancel quotes through the Exchange's risk controls, 
which are offered at no charge that enables Market Makers to establish 
pre-determined levels of risk exposure, and can be used to cancel all 
open quotes.\28\
---------------------------------------------------------------------------

    \27\ Current Exchange port functionality supports cancelation 
rates that exceed one thousand messages per second and the 
Exchange's research indicates that certain Participants rely on such 
functionality and at times utilize such cancelation rates.
    \28\ See Exchange Rule 532.
---------------------------------------------------------------------------

    Further, like Purge Ports, Members may also cancel all or a subset 
of its orders in the System, by firm name or by MPID, over their 
existing ports, or by

[[Page 85944]]

requesting the Exchange staff to effect such cancellations.\29\
---------------------------------------------------------------------------

    \29\ See Exchange Rule 519C(a).
---------------------------------------------------------------------------

    Similarly, Market Makers may use cancel-on-disconnect control when 
they experience a disruption in their connection to the Exchange and 
immediately cancel all pending quotes in the Exchange's System.\30\ 
Finally, this existing purging functionality will allow Market Makers 
to achieve essentially the same outcome in canceling quotes as they 
would by utilizing the Purge Ports. Accordingly, the Exchange believes 
that the proposed Purge Port fee is reasonable because it is related to 
the efficiency of Purge Ports and to other means and services already 
available which are either free or already a part of a fee assessed to 
the Market Maker for existing connectivity. Accordingly, because Purge 
Ports provide additional optional functionality, excessive fees would 
simply serve to reduce or eliminate demand for this optional product.
---------------------------------------------------------------------------

    \30\ See Exchange Rule 519C(c).
---------------------------------------------------------------------------

    The Exchange also believes that offering Purge Ports at the 
Matching Engine level promotes risk management across the industry, and 
thereby facilitates investor protection. Some market participants, in 
particular the larger firms, could and do build similar risk 
functionality (as described above) in their trading systems that permit 
the flexible cancellation of quotes entered on the Exchange at a high 
rate. Offering Matching Engine level protections ensures that such 
functionality is widely available to all firms, including smaller firms 
that may otherwise not be willing to incur the costs and development 
work necessary to support their own customized mass cancel 
functionality.
    As noted above, the Exchange is not the only exchange to offer 
dedicated Purge Ports, and the proposed rate is lower than that charged 
by other exchanges for similar functionality. The Exchange also 
believes that moving to a per Matching Engine fee is reasonable due to 
the Exchange's architecture that provides it the ability to provide two 
(2) Purge Ports per Matching Engine for a fee that would still be lower 
than competing exchanges that charge on a per port basis. Generally 
speaking, restricting the Exchange's ability to charge fees for these 
services discourages innovation and competition. Specifically in this 
case, the Exchange's inability to offer similar services to those 
offered by other exchanges, and charge reasonable and equitable fees 
for such services, would put the Exchange at a significant competitive 
disadvantage and, therefore, serve to restrict competition in the 
market--especially when other exchanges assess comparable fees higher 
than those proposed by the Exchange.
    The Exchange believes that the proposed Purge Port fees are 
equitable because the proposed Purge Ports are completely voluntary as 
they relate solely to optional risk management functionality.
    The Exchange also believes that the proposed amendments to its Fee 
Schedule are not unfairly discriminatory because they will apply 
uniformly to all Market Makers that choose to use the optional Purge 
Ports. Purge Ports are completely voluntary and, as they relate solely 
to optional risk management functionality, no Market Maker is required 
or under any regulatory obligation to utilize them. All Market Makers 
that voluntarily select this service option will be charged the same 
amount for the same services. All Market Makers have the option to 
select any connectivity option, and there is no differentiation among 
Market Makers with regard to the fees charged for the services offered 
by the Exchange.

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. Purge Ports are completely 
voluntary and are available to all Market Makers on an equal basis at 
the same cost. While the Exchange believes that Purge Ports provide a 
valuable service, Market Makers can choose to purchase, or not 
purchase, these ports based on their own determination of the value and 
their business needs. No Market Maker is required or under any 
regulatory obligation to utilize Purge Ports. Accordingly, the Exchange 
believes that Purge Ports offer appropriate risk management 
functionality to firms that trade on the Exchange without imposing an 
unnecessary or inappropriate burden on competition.
    Furthermore, the Exchange operates in a highly competitive 
environment, and its ability to price the Purge Ports is constrained by 
competition among exchanges that offer similar functionality. As 
discussed, there are currently a number of similar offers available to 
market participants for higher fees at other exchanges. Proposing fees 
that are excessively higher than established fees for similar 
functionality would simply serve to reduce demand for the Purge Ports, 
which as discussed, market participants are under no obligation to 
utilize. It could also cause firms to shift trading to other exchanges 
that offer similar functionality at a lower cost, adversely impacting 
the overall trading on the Exchange and reducing market share. In this 
competitive environment, potential purchasers are free to choose which, 
if any, similar product to purchase to satisfy their need for risk 
management. As a result, the Exchange believes this proposed rule 
change permits fair competition among national securities exchanges.
    The Exchange also does not believe the proposal would cause any 
unnecessary or inappropriate burden on intermarket competition as other 
exchanges are free to introduce their own purge port functionality and 
lower their prices to better compete with the Exchange's offering. The 
Exchange does not believe the proposed rule change would cause any 
unnecessary or inappropriate burden on intramarket competition. 
Particularly, the proposal would apply uniformly to any market 
participant, in that it does not differentiate between Market Makers. 
The proposal would allow any interested Market Makers to purchase Purge 
Port functionality based on their business needs.

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

    The Exchange received one comment letter on the proposal.\31\ This 
comment letter was submitted not only on this proposal, but also the 
proposals by the Exchange and its affiliates to amend fees for 10Gb ULL 
connectivity and certain ports. Overall, the Exchange believes that the 
issues raised by the commenter are not germane to this proposal because 
they apply primarily to the other fee filings. Also, the commenter's 
raised concerns with the current environment surrounding exchange non-
transaction fee proposals that should be addressed by the Commission 
through rule making, or Congress, more holistically and not through an 
individual exchange fee filings. However, the commenter does raise one 
issue that concerns this proposal whereby it asserts that the 
Exchange's comparison to fees charged by other exchanges for similar 
ports is irrelevant and unpersuasive. The core of the issue raised is 
regarding the cost to connect to one exchange compared to the cost to 
connect to others. A thorough

[[Page 85945]]

response to this comment would require the Exchange to obtain 
competitively sensitive information about other exchange architecture 
and how their members connect. The Exchange is not privy to this 
information. Further, the commenter compares the Exchange's proposed 
rate to other exchanges that offer purge port functionality across all 
matching engines for a single fee, but fails to provide the same 
comparison to other exchanges that charge for purge functionality like 
proposed here. The Exchange does not have insight into the technical 
architecture of other exchanges so it is difficult to ascertain the 
number of purge ports a firm would need to connect to another exchanges 
entire market. Therefore, the Exchange is limited to comparing its 
proposed fee to other exchanges' purge port fees as listed in their fee 
schedules.
---------------------------------------------------------------------------

    \31\ See letter from Thomas M. Merritt, Deputy General Counsel, 
Virtu Financial, Inc. (``Virtu''), to Vanessa Countryman, Secretary, 
Commission, dated November 8, 2023.
---------------------------------------------------------------------------

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,\32\ and Rule 19b-4(f)(2) \33\ 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.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \33\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-EMERALD-2023-29 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-EMERALD-2023-29. 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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-EMERALD-2023-29 and should 
be submitted on or before January 2, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27067 Filed 12-8-23; 8:45 am]
BILLING CODE 8011-01-P

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