Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX Pearl Equities Fee Schedule, 57974-57978 [2024-15505]
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Federal Register / Vol. 89, No. 136 / Tuesday, July 16, 2024 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100491; File No. SR–
PEARL–2024–28]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the MIAX Pearl
Equities Fee Schedule
July 10, 2024.
Pursuant to the provisions of 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 June 28, 2024, MIAX PEARL, LLC
(‘‘MIAX Pearl’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the fee schedule (the ‘‘Fee
Schedule’’) applicable to MIAX Pearl
Equities, an equities trading facility of
the Exchange.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxglobal.com/markets/
us-equities/pearl-equities/rule-filings, at
MIAX Pearl’s principal office, and at the
Commission’s Public Reference Room.
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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.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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1. Purpose
The Exchange proposes to amend the
Fee Schedule to establish an alternative
volume calculation method for Equity
Members 3 to achieve the additive StepUp Rebate described in the NBBO Setter
Plus Program (referred to in this filing
as the ‘‘NBBO Program’’).4
Background of the NBBO Program and
Additive Rebates
The NBBO Program was implemented
beginning September 1, 2023 and
subsequently amended several times.5
In general, the NBBO Program provides
enhanced rebates 6 for Equity Members
that add displayed liquidity (‘‘Added
Displayed Volume’’) in securities priced
at or above $1.00 per share in all Tapes
based on increasing volume thresholds
and increasing market quality levels
(described below). Pursuant to the
NBBO Setter Plus Table in Section 1)c)
of the Fee Schedule, the NBBO Program
provides six volume tiers enhanced by
three market quality levels to provide
increasing rebates in this segment. The
six volume tiers are achievable by
greater volume from the best of four
alternative volume calculation methods.
The three market quality levels are
achievable by greater NBBO
participation in a minimum number of
specific securities (described below).
MIAX Pearl Equities first determines
the applicable NBBO Program tier based
on four different volume calculation
methods. The four volume-based
methods to determine the Equity
Member’s tier for purposes of the NBBO
Program are calculated in parallel in
each month, and each Equity Member
receives the highest tier achieved from
any of the four methods each month.
The first three volume calculation
methods are based on an Equity
Member’s respective ADAV, NBBO Set
Volume, or ADV,7 each as a percent of
3 The term ‘‘Equity Member’’ is a Member
authorized by the Exchange to transact business on
MIAX Pearl Equities. See Exchange Rule 1901.
4 See Fee Schedule, Section 1)c), note #4.
5 See, e.g., Securities Exchange Act Release Nos.
98472 (September 21, 2023), 88 FR 66533
(September 27, 2023) (SR–PEARL–2023–45); 99318
(January 11, 2024), 89 FR 3488 (January 18, 2024)
(SR–PEARL–2023–73); 99695 (March 8, 2024), 89
FR 18694 (March 14, 2024) (SR–PEARL–2024–11);
and 100338 (June 14, 2024), 89 FR 52141 (June 21,
2024) (SR–PEARL–2024–26).
6 Rebates are indicated by parentheses in the Fee
Schedule. See the General Notes section of the Fee
Schedule.
7 ‘‘ADAV’’ means average daily added volume
calculated as the number of shares added per day
and ‘‘ADV’’ means average daily volume calculated
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industry TCV 8 as the denominator,
inclusive of executions of orders in
securities priced below $1.00 per share
across all Tapes. The fourth volume
calculation method is based on an
Equity Member’s ADAV as a percentage
of industry TCV as the denominator,
exclusive of executions of orders in
securities priced below $1.00 per share
across all Tapes.9 The Exchange does
not propose to amend the four volume
calculation methods or tier threshold
percentages pursuant to this proposal.
After the volume calculation is
performed to determine highest tier
achieved by the Equity Member, the
applicable rebate is calculated based on
two different measurements based on
the Equity Member’s participation at the
NBBO on the Exchange in certain
securities (referenced below). The
Exchange provides one column of base
rebates (referred to in the NBBO Setter
Plus Table as ‘‘Level A’’) and two
columns of enhanced rebates (referred
to in the NBBO Setter Plus Table as
‘‘Level B’’ and ‘‘Level C’’) 10, depending
on the Equity Member’s Percent Time at
NBBO 11 on MIAX Pearl Equities in a
as the number of shares added or removed,
combined, per day. ADAV and ADV are calculated
on a monthly basis. ‘‘NBBO Set Volume’’ means the
ADAV in all securities of an Equity Member that
sets the NBB or NBO on MIAX Pearl Equities. See
the Definitions section of the Fee Schedule. The
Exchange excludes from its calculation of ADAV,
ADV, and TCV: (1) any trading day that the
Exchange’s system experiences a disruption that
lasts for more than 60 minutes during regular
trading hours; (2) any day with a scheduled early
market close; (3) the ‘‘Russell Reconstitution Day’’
(typically the last Friday in June); (4) any day that
the MSCI Equities Indexes are rebalanced (i.e., on
a quarterly basis); and (5) any day that the S&P 400,
S&P 500, and S&P 600 Indexes are rebalanced (i.e.,
on a quarterly basis). See id.
8 ‘‘TCV’’ means total consolidated volume
calculated as the volume in shares reported by all
exchanges and reporting facilities to a consolidated
transaction reporting plan for the month for which
the fees apply. See id.
9 See supra note 5 (recent filings amending the
NBBO Program, which provide a description of the
different volume calculation methods and tier
threshold percentages); see also Fee Schedule,
Section 1)c).
10 For the purpose of determining qualification for
the rebates described in all Levels of the Market
Quality Tier columns in the NBBO Setter Plus
Table, the Exchange will exclude from its
calculation: (1) any trading day that the Exchange’s
system experiences a disruption that lasts for more
than 60 minutes during regular trading hours; (2)
any day with a scheduled early market close; (3) the
‘‘Russell Reconstitution Day’’ (typically the last
Friday in June); (4) any day that the MSCI Equities
Indexes are rebalanced (i.e., on a quarterly basis);
and (5) any day that the S&P 400, S&P 500, and S&P
600 Indexes are rebalanced (i.e., on a quarterly
basis). See the General Notes section of the Fee
Schedule.
11 ‘‘Percent Time at NBBO’’ means the aggregate
of the percentage of time during regular trading
hours where a Member has a displayed order of at
least one round lot at the national best bid (‘‘NBB’’)
or national best offer (‘‘NBO’’). See the Definitions
section of the Fee Schedule.
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certain amount of specified securities
(‘‘Market Quality Securities’’ or ‘‘MQ
Securities’’).12 The NBBO Setter Plus
Table specifies the percentage of time
that the Equity Member must be at the
NBB or NBO on MIAX Pearl Equities in
at least 200 symbols out of the full list
of 1,000 MQ Securities (which symbols
may vary from time to time based on
market conditions). The list of MQ
Securities is generally based on the top
multi-listed 1,000 symbols by ADV
across all U.S. securities exchanges. The
list of MQ Securities is updated
monthly by the Exchange and published
on the Exchange’s website.13 The
Exchange does not propose to amend
the rebates described in Level A, Level
B, or Level C pursuant to this
proposal.14
The NBBO Program provides the
following additional incentives: (1) an
NBBO Setter Additive Rebate 15 applied
to executions of orders in securities
priced at or above $1.00 per share that
set the NBB or NBO upon entry; (2) an
NBBO First Joiner Additive Rebate 16
applied to executions of orders in
securities priced at or above $1.00 per
share that bring MIAX Pearl Equities to
the established NBB or NBO; and (3) an
additive Step-Up Rebate 17 (described
further below) for Equity Members that
satisfy the (i) minimum displayed
ADAV as a percentage of TCV of 0.35%
and (ii) an increase in the percentage of
displayed ADAV as a percentage of TCV
of at least 0.05% as compared to the
Equity Member’s February 2024
displayed ADAV percentage.
12 ‘‘Market Quality Securities’’ or ‘‘MQ
Securities’’ shall mean a list of securities designated
as such, that are used for the purposes of qualifying
for the rebates described in Level B and Level C of
the Market Quality Tier columns in the NBBO
Setter Plus Program. The universe of these
securities will be determined by the Exchange and
published on the Exchange’s website. See id.
13 See e.g, MIAX Pearl Equities Exchange—
Market Quality Securities (MQ Securities) List,
effective June 1 through June 30, 2024, available at
https://www.miaxglobal.com/markets/us-equities/
pearl-equities/fees (last visited June 26, 2024).
14 See supra note 5 for a complete description of
the Level A, Level B, and Level C rebates; see also
Fee Schedule, Section 1)c).
15 The Exchange does not propose to amend the
NBBO Setter Additive Rebate, which is an additive
rebate of ($0.0004) per share for executions of
orders in securities priced at or above $1.00 per
share that set the NBB or NBO on MIAX Pearl
Equities with a minimum size of a round lot. See
Fee Schedule, Section 1)c).
16 The Exchange does not propose to amend the
NBBO First Joiner Additive Rebate, which is an
additive rebate of ($0.0002) per share for executions
of orders in securities priced at or above $1.00 per
share that bring MIAX Pearl Equities to the
established NBB or NBO with a minimum size of
a round lot. See Fee Schedule, Section 1)c).
17 See supra note 4.
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Proposal To Amend the NBBO Setter
Plus Table To Establish an Alternative
Volume Calculation Method for Equity
Members To Achieve the Step-Up
Rebate
The Exchange proposes to amend the
Step-Up Rebate in footnote #4 of the
NBBO Setter Plus Table in Section 1)c)
of the Fee Schedule to establish an
alternative volume calculation method
for Equity Members to achieve the
additive Step-Up Rebate. Currently, the
Exchange offers a Step-Up Rebate of
($0.0001) per share for executions of
orders in securities priced at or above
$1.00 per share for Added Displayed
Volume (other than Retail Orders) 18 for
Equity Members that satisfy the
following requirements in the relevant
month: (1) minimum displayed ADAV
of 0.35% of TCV; and (2) increase in the
percentage of displayed ADAV of at
least 0.05% of TCV as compared to the
Equity Member’s February 2024 19
displayed ADAV percentage.20 The
Step-Up Rebate is set to expire no later
than August 31, 2024 (referred to herein
as the ‘‘sunset period’’),21 which is
stated in the Fee Schedule.22
The Exchange proposes to amend the
Step-Up Rebate described in footnote #4
of the NBBO Setter Plus Table to
establish an alternative volume
calculation method for Equity Members
to achieve the Step-Up Rebate, which
will be in addition to the current
volume calculation method for the StepUp Rebate. The proposed alternative
volume calculation method will provide
the same requirements as the current
18 The Exchange excludes Retail Orders from
participating in the Step-Up Rebate because
executions of orders in securities priced at or above
$1.00 per share for Added Displayed Volume in
Retail Orders already receive an enhanced rebate of
($0.0037) per share. See Fee Schedule, Section 1)b),
Liquidity Indicator Code ‘‘AR’’.
19 The Exchange uses a baseline ADAV of 0.00%
of TCV for firms that become Equity Members of the
Exchange after February 2024 for the purpose of the
Step-Up Rebate calculation. See Securities
Exchange Act Release No. 99982 (April 17, 2024),
89 FR 30408 (April 23, 2024) (SR–PEARL–2024–
18).
20 The Exchange notes that the proposed Step-Up
Rebate will not apply to executions of orders in
securities priced below $1.00 per share or
executions of orders that constitute added nondisplayed liquidity. See id.
21 The Exchange notes that at the end of the
sunset period, the Step-Up Rebate will no longer
apply unless the Exchange files a rule filing
pursuant to Rule 19b–4 of the Exchange Act with
the U.S. Securities and Exchange Commission
(‘‘Commission’’) to amend the criteria terms or
update the baseline month to a more recent month.
See id.
22 The Exchange will issue an alert to market
participants should the Exchange determine that
the Step-Up Rebate will expire earlier than August
31, 2024 or if the Exchange determines to amend
the criteria or rate applicable to the Step-Up Rebate
prior to the end of the sunset period. See id.
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57975
Step-Up Rebate volume calculation
requirements, except when calculating
both the numerator (ADAV) and the
denominator (TCV), executions of
orders in securities priced below $1.00
per share (‘‘sub-dollar volume’’) across
all Tapes will be excluded. Accordingly,
with the addition of the alternative
volume calculation method to the
footnote describing the Step-Up Rebate,
footnote #4 of the NBBO Setter Plus
Table will provide as follows:
An Equity Member may qualify for a StepUp Rebate of ($0.0001) per share by satisfying
the following requirements in the relevant
month: (1) minimum Displayed ADAV as a
percentage of TCV of 0.35%; and (2) increase
in the percentage of Displayed ADAV as a
percentage of TCV of at least 0.05% as
compared to the Equity Member’s February
2024 Displayed ADAV percentage.
Alternatively, an Equity Member may qualify
for a Step-Up Rebate of ($0.0001) per share
by satisfying the following requirements in
the relevant month: (1) minimum Displayed
ADAV as a percentage of TCV of 0.35%
(excluding sub-dollar volume); and (2)
increase in the percentage of Displayed
ADAV as percentage of TCV of at least 0.05%
as compared to the Equity Member’s
February 2024 Displayed ADAV percentage
(excluding sub-dollar volume). The Step-Up
Rebate will expire no later than August 31,
2024.23
The Step-Up Rebate, as proposed to
be amended, will still expire no later
than August 31, 2024,24 which will
continue to be stated in the Fee
Schedule. The Exchange will issue an
alert to market participants should the
Exchange determine that the Step-Up
Rebate will expire earlier than August
31, 2024 or if the Exchange determines
to amend the criteria or rate applicable
to the Step-Up Rebate prior to the end
of the sunset period.
The purpose of establishing the
proposed alternative volume calculation
method for Equity Members to achieve
the Step-Up Rebate, which excludes
sub-dollar volume, is for business and
competitive reasons. Generally, the ratio
of consolidated volumes in securities
priced at or above $1.00 per share
relative to consolidated volumes
inclusive of securities priced below
$1.00 per share is usually stable from
month to month, such that TCV has
23 The Exchange proposes to use a baseline ADAV
of 0.00% of TCV for firms that become Equity
Members of the Exchange after February 2024 for
the purpose of the alternative volume calculation
method for the Step-Up Rebate calculation, just as
the Exchange does now for the current Step-Up
Rebate calculation. See id.
24 The Exchange notes that at the end of the
sunset period, the Step-Up Rebate will no longer
apply unless the Exchange files a rule filing
pursuant to Rule 19b–4 of the Exchange Act with
the Commission to amend the criteria terms or
update the baseline month to a more recent month.
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been a reasonable baseline for
determining tiered and additive
incentives for Equity Members that
execute order in securities priced at or
above $1.00 per share on the Exchange.
However, there have been recent
months where volumes in securities
priced below $1.00 per share have been
elevated, thereby impacting the ratio
mentioned above.
Anomalous rises in sub-dollar volume
may have a material adverse impact on
Equity Members’ qualifications for the
pricing tiers and enhanced rebates in
the NBBO Program, including the
additive Step-Up Rebate, because such
qualifications depend upon Equity
Members achieving threshold
percentages of volumes as a percentage
of TCV, and an extraordinary rise in
sub-dollar volume may significantly
elevate TCV. As a result, Equity
Members may find it more difficult to
qualify for or to continue to qualify for
their existing incentives during months
where there are such rises in sub-dollar
volumes, even if their volume of
executions of orders in securities priced
at or above $1.00 per share have not
diminished relative to prior months.
The Exchange believes that it would be
unfair for its Equity Members that
execute significant volumes in securities
priced at or above $1.00 per share on the
Exchange to fail to achieve or to lose
their existing incentives for such
volumes due to anomalous behavior that
is extraneous to them. Therefore, the
Exchange proposes to amend the NBBO
Program to establish the proposed
alternative volume calculation method
for the Step-Up Rebate to provide an
alternative option when extraordinary
spikes in sub-dollar volumes may
adversely affect an Equity Member’s
qualification for such incentive for their
executions of orders in securities priced
at or above $1.00 per share.
The NBBO Program currently
provides a similar volume calculation
that excludes sub-dollar volume (i.e.,
volume calculation Method 4), which
calculates Equity Members’ volume for
purposes of pricing tiers and incentives
by excluding sub-dollar volumes from
the calculation, which may result in the
most advantageous volume calculation
for such pricing tiers and incentives.25
In addition, at least one competing
equities exchange calculates their
members’ volume for purposes of
pricing tiers and incentives by
excluding sub-dollar volumes from one
calculation and utilizing the most
advantageous volume calculation for
25 See
supra note 9.
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such pricing tiers and incentives.26
Accordingly, this proposal is not new or
novel.
Implementation
The proposed fee change is effective
beginning July 1, 2024.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Fee Schedule is
consistent with Section 6(b) of the Act 27
in general, and furthers the objectives of
Section 6(b)(4) of the Act 28 in
particular, in that it is an equitable
allocation of reasonable fees and other
charges among its Equity Members and
issuers and other persons using its
facilities. The Exchange also believes
that the proposed rule change is
consistent with the objectives of Section
6(b)(5) 29 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, and to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, 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,
particularly, is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange operates in a highly
fragmented and competitive market in
which market participants can readily
direct their order flow to competing
venues if they deem fee levels at a
particular venue to be excessive or
incentives to be insufficient. More
specifically, the Exchange is only one of
sixteen registered equities exchanges,
26 See the Nasdaq Stock Market LLC (‘‘Nasdaq’’)
Rules, Equity 7: Pricing Schedule, Section 114.
Market Quality Incentive Programs, Section (h)(5)
(‘‘For purposes of calculating a member’s
qualifications for Tiers 1 and 2 of the QMM
Program credits . . . the Exchange will calculate a
member’s volume and total Consolidated Volume
twice. First, the Exchange will calculate a member’s
volume and total Consolidated Volume inclusive of
volume that consists of executions in securities
priced less than $1. Second, the Exchange will
calculate a member’s volume and total Consolidated
Volume exclusive of volume that consists of
executions in securities priced less than $1, while
also applying distinct qualifying volume thresholds
to each Tier . . . . The Exchange will then assess
which of these two calculations would qualify the
member for the most advantageous credits for the
month and then it will apply those credits to the
member.’’). See also Securities Exchange Act
Release No. 99535 (February 14, 2024), 89 FR 13125
(February 21, 2024) (SR–NASDAQ–2024–005).
27 15 U.S.C. 78f(b).
28 15 U.S.C. 78f(b)(4).
29 15 U.S.C 78f(b)(5).
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and there are a number of alternative
trading systems and other off-exchange
venues, to which market participants
may direct their order flow. For the
month of May 2024, based on publicly
available information, no single
registered equities exchange had more
than approximately 14–15% of the total
market share of executed volume of
equities trading.30 Thus, in such a lowconcentrated and highly competitive
market, no single equities exchange
possesses significant pricing power in
the execution of order flow. For the
month of May 2024, the Exchange
represented 1.68% of the total market
share of executed volume of equities
trading.31 The Commission and the
courts have repeatedly expressed their
preference for competition over
regulatory intervention in determining
prices, products, and services in the
securities markets. In Regulation NMS,
the Commission highlighted the
importance of market forces in
determining prices and SRO revenues
and also recognized that current
regulation of the market system ‘‘has
been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 32
The Exchange believes that the evershifting market share among the
exchanges from month to month
demonstrates that market participants
can shift order flow or discontinue to
reduce use of certain categories of
products, in response to new or
different pricing structures being
introduced into the market.
Accordingly, competitive forces
constrain the Exchange’s transaction
fees and rebates, and market
participants can readily trade on
competing venues if they deem pricing
levels at those other venues to be more
favorable. The Exchange believes the
proposal reflects a reasonable and
competitive pricing structure designed
to continue to incentivize market
participants to direct their order flow to
the Exchange, which the Exchange
believes would continue to enhance
liquidity and market quality to the
benefit of all Equity Members and
market participants.
The Exchange believes its proposal to
amend the NBBO Setter Plus Table to
establish an alternative volume
calculation method for Equity Members
to achieve the Step-Up Rebate is
reasonable and equitable because, in its
30 See the ‘‘Market Share’’ section of the
Exchange’s website, available at https://
www.miaxglobal.com/.
31 Id.
32 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37499 (June 29, 2005).
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absence, Equity Members may
experience material adverse impacts on
their ability to qualify for the additive
Step-Up Rebate during a month with an
anomalous rise in sub-dollar volumes.
The Exchange believes it is reasonable
and equitable to not inadvertently
penalize Equity Members that execute
significant volumes on the Exchange
due to anomalous and extraneous
trading activities in sub-dollar
securities. The proposed alternative
volume calculation method would
provide a means for Equity Members
that add displayed liquidity an
alternative method by determining
whether calculating ADAV as a
percentage of TCV to include or exclude
sub-dollar volume would result in
Equity Members qualifying for the
additive Step-Up Rebate. The Exchange
would then be able to apply the most
advantageous volume calculation that
would result in the Step-Up Rebate
being achieved for each Equity Member.
The Exchange believes that the
proposed rule change is equitable and
not unfairly discriminatory because the
Exchange does not intend for the
proposal to advantage any particular
Equity Member.
The Exchange believes that the
proposal to establish the alternative
volume calculation method for the StepUp Rebate provides a reasonable means
to continue to encourage Equity
Members to not only increase their
order flow to the Exchange but also to
contribute to price discovery and market
quality on the Exchange by submitting
aggressively priced displayed liquidity
in securities priced at or above $1.00 per
share. The Exchange believes that the
NBBO Program, as modified with this
proposal, continues to be equitable and
not unfairly discriminatory because it is
open to all Equity Members on an equal
basis and provides enhanced rebates
that are reasonably related to the value
of the Exchange’s market quality
associated with greater order flow by
Equity Members that set the NBBO, and
the introduction of higher volumes of
orders into the price and volume
discovery process. The Exchange
believes the proposal is equitable and
not unfairly discriminatory because it is
designed to incentivize the entry of
aggressively priced displayed liquidity
that will create tighter spreads, thereby
promoting price discovery and market
quality on the Exchange to the benefit
of all Equity Members and public
investors.
The Exchange’s NBBO Program
currently provides for volume
calculation Method 4, which calculates
Equity Members’ volume for purposes of
pricing tiers and incentives by
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excluding sub-dollar volumes from the
calculation, which may result in the
most advantageous volume calculation
for such pricing tiers and incentives.33
The Exchange notes that at least one
other competing equities exchange
calculates their members’ volume for
purposes of pricing tiers and incentives
by excluding sub-dollar volumes from
one calculation and utilizing the most
advantageous volume calculation for
such pricing tiers and incentives.34
The Exchange believes it is reasonable
to continue to use February 2024 as the
baseline month for the proposed
alternative volume calculation method
for the Step-Up Rebate (with a sunset
period of August 31, 2024) because it
will provide a consistent baseline
month for volume calculation purposes
for both methods of determining the
Step-Up Rebate. The Exchange believes
it is equitable and not unfairly
discriminatory to use February 2024 as
the baseline month for the proposed
alternative volume calculation method
for the Step-Up Rebate because the
Exchange will use a baseline of 0.00%
ADAV for those market participants that
became Equity Members of the
Exchange post-February 2024, providing
a consistent and equitable approach for
those Equity Members to achieve the
Step-Up Rebate.
For the reasons discussed above, the
Exchange submits that the proposal
satisfies the requirements of Sections
6(b)(4) and 6(b)(5) of the Act in that it
provides for the equitable allocation of
reasonable dues, fees and other charges
among its Equity Members and other
persons using its facilities and is not
designed to unfairly discriminate
between customers, issuers, brokers, or
dealers. As described more fully below
in the Exchange’s statement regarding
the burden on competition, the
Exchange believes that its transaction
pricing is subject to significant
competitive forces, and that the
proposed rebates described herein are
appropriate to address such forces.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed changes will impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act.
Intramarket Competition
The Exchange believes that the
proposed change to establish an
alternative volume calculation method
for the Step-Up Rebate will not impose
PO 00000
33 See
34 See
supra note 9.
supra note 26.
Frm 00135
Fmt 4703
Sfmt 4703
57977
any burden on intramarket competition
because it will incentivize Equity
Members to submit additional orders
that add liquidity to the Exchange,
thereby contributing to a deeper and
more liquid market and promoting price
discovery and market quality on the
Exchange to the benefit of all market
participants and enhancing the
attractiveness of the Exchange as a
trading venue. In turn, the Exchange
believes that this will continue to
encourage market participants to direct
additional order flow to the Exchange.
Greater liquidity benefits all Members
by providing more trading opportunities
and encourages Equity Members to send
additional orders to the Exchange,
thereby contributing to robust levels of
liquidity, which benefits all market
participants. As described above, the
opportunity to qualify for the Step-Up
Rebate, as amended, would be available
to all Equity Members that meet the
associated requirements, and the
Exchange believes the proposed changes
provide such incentives is reasonably
related to the enhanced market quality
that they are designed to promote.
The Exchange intends for its proposal
to establish an alternative volume
calculation method for the Step-Up
Rebate to provide an alternative option
for Equity Members to achieve such
additive rebate due to anomalous spikes
in sub-dollar volumes and is not
intended to provide a competitive
advantage to any particular Equity
Member. The proposed alternative
volume calculation method will be
eligible to all Equity Members equally in
that the Exchange will calculate both
volume calculation methods for the
Step-Up Rebate in parallel each month
and apply the most advantageous
calculation to each Equity Member’s
volume to qualify for the additive StepUp Rebate. For the foregoing reasons,
the Exchange believes the proposed
changes would not impose any burden
on intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
Intermarket Competition
The Exchange believes its proposal
will benefit competition as the
Exchange operates in a highly
competitive market. Equity Members
have numerous alternative venues they
may participate on and direct their
order flow to, including fifteen other
equities exchanges and numerous
alternative trading systems and other
off-exchange venues. As noted above, no
single registered equities exchange
currently has more than approximately
14–15% of the total market share of
executed volume of equities trading.
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57978
Federal Register / Vol. 89, No. 136 / Tuesday, July 16, 2024 / Notices
Thus, in such a low-concentrated and
highly competitive market, no single
equities exchange possesses significant
pricing power in the execution of order
flow. Moreover, the Exchange believes
that the ever-shifting market share
among the exchanges from month to
month demonstrates that market
participants can shift order flow in
response to new or different pricing
structures being introduced to the
market.
As described above, the proposed
change is a competitive proposal
through which the Exchange seeks to
encourage certain order flow to the
Exchange and to promote market quality
through an alternative pricing incentive
that is similar in structure and purpose
to a pricing program available at the
Exchange, as well as at least one
competing equities exchange.35
Accordingly, the Exchange believes the
proposal would not burden, but rather
promote, intermarket competition by
enabling it to better compete with other
exchanges that offer similar incentives
to market participants that enhance
market quality.
Additionally, the Commission has
repeatedly expressed its preference for
competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. Specifically, in Regulation
NMS, the Commission highlighted the
importance of market forces in
determining prices and SRO revenues
and, also, recognized that current
regulation of the market system ‘‘has
been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 36 The
fact that this market is competitive has
also long been recognized by the courts.
In NetCoalition v. Securities and
Exchange Commission, the DC circuit
stated: ‘‘[n]o one disputes that
competition for order flow is ‘fierce.’
. . . As the SEC explained, ‘[i]n the U.S.
national market system, buyers and
sellers of securities, and the brokerdealers that act as their routing agents,
have a wide range of choices of where
to route orders for execution’; [and] ‘no
exchange can afford to take its market
share percentages for granted’ because
‘no exchange possess a monopoly,
regulatory or otherwise, in the execution
of order flow from broker dealers’
. . . .’’ 37 Accordingly, the Exchange
35 See
supra notes 9 and 26.
Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
37 See NetCoalition v. SEC, 615 F.3d 525, 539
(D.C. Cir. 2010) (quoting Securities Exchange Act
Release No. 59039 (December 2, 2008), 73 FR
does not believe its proposed pricing
changes impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act,38 and Rule
19b–4(f)(2) 39 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number
SR–PEARL–2024–28 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–2024–28. 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
36 See
VerDate Sep<11>2014
16:55 Jul 15, 2024
Jkt 262001
74770, 74782–83 (December 9, 2008) (SR–NYSE–
2006–21)).
38 15 U.S.C. 78s(b)(3)(A)(ii).
39 17 CFR 240.19b–4(f)(2).
PO 00000
Frm 00136
Fmt 4703
Sfmt 4703
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–PEARL–2024–28 and should be
submitted on or before August 6, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.40
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–15505 Filed 7–15–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100488; File No. SR–
NASDAQ–2024–036]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Options 7, Section 3
DATES:
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 July 1,
2024, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ 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
40 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\16JYN1.SGM
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]]>Agencies
[Federal Register Volume 89, Number 136 (Tuesday, July 16, 2024)]
[Notices]
[Pages 57974-57978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15505]
[[Page 57974]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100491; File No. SR-PEARL-2024-28]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
Pearl Equities Fee Schedule
July 10, 2024.
Pursuant to the provisions of 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 June 28, 2024, MIAX PEARL, LLC (``MIAX Pearl''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the fee schedule (the
``Fee Schedule'') applicable to MIAX Pearl Equities, an equities
trading facility of the Exchange.
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxglobal.com/markets/us-equities/pearl-equities/rule-filings, at MIAX Pearl's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Fee Schedule to establish an
alternative volume calculation method for Equity Members \3\ to achieve
the additive Step-Up Rebate described in the NBBO Setter Plus Program
(referred to in this filing as the ``NBBO Program'').\4\
---------------------------------------------------------------------------
\3\ The term ``Equity Member'' is a Member authorized by the
Exchange to transact business on MIAX Pearl Equities. See Exchange
Rule 1901.
\4\ See Fee Schedule, Section 1)c), note #4.
---------------------------------------------------------------------------
Background of the NBBO Program and Additive Rebates
The NBBO Program was implemented beginning September 1, 2023 and
subsequently amended several times.\5\ In general, the NBBO Program
provides enhanced rebates \6\ for Equity Members that add displayed
liquidity (``Added Displayed Volume'') in securities priced at or above
$1.00 per share in all Tapes based on increasing volume thresholds and
increasing market quality levels (described below). Pursuant to the
NBBO Setter Plus Table in Section 1)c) of the Fee Schedule, the NBBO
Program provides six volume tiers enhanced by three market quality
levels to provide increasing rebates in this segment. The six volume
tiers are achievable by greater volume from the best of four
alternative volume calculation methods. The three market quality levels
are achievable by greater NBBO participation in a minimum number of
specific securities (described below).
---------------------------------------------------------------------------
\5\ See, e.g., Securities Exchange Act Release Nos. 98472
(September 21, 2023), 88 FR 66533 (September 27, 2023) (SR-PEARL-
2023-45); 99318 (January 11, 2024), 89 FR 3488 (January 18, 2024)
(SR-PEARL-2023-73); 99695 (March 8, 2024), 89 FR 18694 (March 14,
2024) (SR-PEARL-2024-11); and 100338 (June 14, 2024), 89 FR 52141
(June 21, 2024) (SR-PEARL-2024-26).
\6\ Rebates are indicated by parentheses in the Fee Schedule.
See the General Notes section of the Fee Schedule.
---------------------------------------------------------------------------
MIAX Pearl Equities first determines the applicable NBBO Program
tier based on four different volume calculation methods. The four
volume-based methods to determine the Equity Member's tier for purposes
of the NBBO Program are calculated in parallel in each month, and each
Equity Member receives the highest tier achieved from any of the four
methods each month. The first three volume calculation methods are
based on an Equity Member's respective ADAV, NBBO Set Volume, or
ADV,\7\ each as a percent of industry TCV \8\ as the denominator,
inclusive of executions of orders in securities priced below $1.00 per
share across all Tapes. The fourth volume calculation method is based
on an Equity Member's ADAV as a percentage of industry TCV as the
denominator, exclusive of executions of orders in securities priced
below $1.00 per share across all Tapes.\9\ The Exchange does not
propose to amend the four volume calculation methods or tier threshold
percentages pursuant to this proposal.
---------------------------------------------------------------------------
\7\ ``ADAV'' means average daily added volume calculated as the
number of shares added per day and ``ADV'' means average daily
volume calculated as the number of shares added or removed,
combined, per day. ADAV and ADV are calculated on a monthly basis.
``NBBO Set Volume'' means the ADAV in all securities of an Equity
Member that sets the NBB or NBO on MIAX Pearl Equities. See the
Definitions section of the Fee Schedule. The Exchange excludes from
its calculation of ADAV, ADV, and TCV: (1) any trading day that the
Exchange's system experiences a disruption that lasts for more than
60 minutes during regular trading hours; (2) any day with a
scheduled early market close; (3) the ``Russell Reconstitution Day''
(typically the last Friday in June); (4) any day that the MSCI
Equities Indexes are rebalanced (i.e., on a quarterly basis); and
(5) any day that the S&P 400, S&P 500, and S&P 600 Indexes are
rebalanced (i.e., on a quarterly basis). See id.
\8\ ``TCV'' means total consolidated volume calculated as the
volume in shares reported by all exchanges and reporting facilities
to a consolidated transaction reporting plan for the month for which
the fees apply. See id.
\9\ See supra note 5 (recent filings amending the NBBO Program,
which provide a description of the different volume calculation
methods and tier threshold percentages); see also Fee Schedule,
Section 1)c).
---------------------------------------------------------------------------
After the volume calculation is performed to determine highest tier
achieved by the Equity Member, the applicable rebate is calculated
based on two different measurements based on the Equity Member's
participation at the NBBO on the Exchange in certain securities
(referenced below). The Exchange provides one column of base rebates
(referred to in the NBBO Setter Plus Table as ``Level A'') and two
columns of enhanced rebates (referred to in the NBBO Setter Plus Table
as ``Level B'' and ``Level C'') \10\, depending on the Equity Member's
Percent Time at NBBO \11\ on MIAX Pearl Equities in a
[[Page 57975]]
certain amount of specified securities (``Market Quality Securities''
or ``MQ Securities'').\12\ The NBBO Setter Plus Table specifies the
percentage of time that the Equity Member must be at the NBB or NBO on
MIAX Pearl Equities in at least 200 symbols out of the full list of
1,000 MQ Securities (which symbols may vary from time to time based on
market conditions). The list of MQ Securities is generally based on the
top multi-listed 1,000 symbols by ADV across all U.S. securities
exchanges. The list of MQ Securities is updated monthly by the Exchange
and published on the Exchange's website.\13\ The Exchange does not
propose to amend the rebates described in Level A, Level B, or Level C
pursuant to this proposal.\14\
---------------------------------------------------------------------------
\10\ For the purpose of determining qualification for the
rebates described in all Levels of the Market Quality Tier columns
in the NBBO Setter Plus Table, the Exchange will exclude from its
calculation: (1) any trading day that the Exchange's system
experiences a disruption that lasts for more than 60 minutes during
regular trading hours; (2) any day with a scheduled early market
close; (3) the ``Russell Reconstitution Day'' (typically the last
Friday in June); (4) any day that the MSCI Equities Indexes are
rebalanced (i.e., on a quarterly basis); and (5) any day that the
S&P 400, S&P 500, and S&P 600 Indexes are rebalanced (i.e., on a
quarterly basis). See the General Notes section of the Fee Schedule.
\11\ ``Percent Time at NBBO'' means the aggregate of the
percentage of time during regular trading hours where a Member has a
displayed order of at least one round lot at the national best bid
(``NBB'') or national best offer (``NBO''). See the Definitions
section of the Fee Schedule.
\12\ ``Market Quality Securities'' or ``MQ Securities'' shall
mean a list of securities designated as such, that are used for the
purposes of qualifying for the rebates described in Level B and
Level C of the Market Quality Tier columns in the NBBO Setter Plus
Program. The universe of these securities will be determined by the
Exchange and published on the Exchange's website. See id.
\13\ See e.g, MIAX Pearl Equities Exchange--Market Quality
Securities (MQ Securities) List, effective June 1 through June 30,
2024, available at https://www.miaxglobal.com/markets/us-equities/pearl-equities/fees (last visited June 26, 2024).
\14\ See supra note 5 for a complete description of the Level A,
Level B, and Level C rebates; see also Fee Schedule, Section 1)c).
---------------------------------------------------------------------------
The NBBO Program provides the following additional incentives: (1)
an NBBO Setter Additive Rebate \15\ applied to executions of orders in
securities priced at or above $1.00 per share that set the NBB or NBO
upon entry; (2) an NBBO First Joiner Additive Rebate \16\ applied to
executions of orders in securities priced at or above $1.00 per share
that bring MIAX Pearl Equities to the established NBB or NBO; and (3)
an additive Step-Up Rebate \17\ (described further below) for Equity
Members that satisfy the (i) minimum displayed ADAV as a percentage of
TCV of 0.35% and (ii) an increase in the percentage of displayed ADAV
as a percentage of TCV of at least 0.05% as compared to the Equity
Member's February 2024 displayed ADAV percentage.
---------------------------------------------------------------------------
\15\ The Exchange does not propose to amend the NBBO Setter
Additive Rebate, which is an additive rebate of ($0.0004) per share
for executions of orders in securities priced at or above $1.00 per
share that set the NBB or NBO on MIAX Pearl Equities with a minimum
size of a round lot. See Fee Schedule, Section 1)c).
\16\ The Exchange does not propose to amend the NBBO First
Joiner Additive Rebate, which is an additive rebate of ($0.0002) per
share for executions of orders in securities priced at or above
$1.00 per share that bring MIAX Pearl Equities to the established
NBB or NBO with a minimum size of a round lot. See Fee Schedule,
Section 1)c).
\17\ See supra note 4.
---------------------------------------------------------------------------
Proposal To Amend the NBBO Setter Plus Table To Establish an
Alternative Volume Calculation Method for Equity Members To Achieve the
Step-Up Rebate
The Exchange proposes to amend the Step-Up Rebate in footnote #4 of
the NBBO Setter Plus Table in Section 1)c) of the Fee Schedule to
establish an alternative volume calculation method for Equity Members
to achieve the additive Step-Up Rebate. Currently, the Exchange offers
a Step-Up Rebate of ($0.0001) per share for executions of orders in
securities priced at or above $1.00 per share for Added Displayed
Volume (other than Retail Orders) \18\ for Equity Members that satisfy
the following requirements in the relevant month: (1) minimum displayed
ADAV of 0.35% of TCV; and (2) increase in the percentage of displayed
ADAV of at least 0.05% of TCV as compared to the Equity Member's
February 2024 \19\ displayed ADAV percentage.\20\ The Step-Up Rebate is
set to expire no later than August 31, 2024 (referred to herein as the
``sunset period''),\21\ which is stated in the Fee Schedule.\22\
---------------------------------------------------------------------------
\18\ The Exchange excludes Retail Orders from participating in
the Step-Up Rebate because executions of orders in securities priced
at or above $1.00 per share for Added Displayed Volume in Retail
Orders already receive an enhanced rebate of ($0.0037) per share.
See Fee Schedule, Section 1)b), Liquidity Indicator Code ``AR''.
\19\ The Exchange uses a baseline ADAV of 0.00% of TCV for firms
that become Equity Members of the Exchange after February 2024 for
the purpose of the Step-Up Rebate calculation. See Securities
Exchange Act Release No. 99982 (April 17, 2024), 89 FR 30408 (April
23, 2024) (SR-PEARL-2024-18).
\20\ The Exchange notes that the proposed Step-Up Rebate will
not apply to executions of orders in securities priced below $1.00
per share or executions of orders that constitute added non-
displayed liquidity. See id.
\21\ The Exchange notes that at the end of the sunset period,
the Step-Up Rebate will no longer apply unless the Exchange files a
rule filing pursuant to Rule 19b-4 of the Exchange Act with the U.S.
Securities and Exchange Commission (``Commission'') to amend the
criteria terms or update the baseline month to a more recent month.
See id.
\22\ The Exchange will issue an alert to market participants
should the Exchange determine that the Step-Up Rebate will expire
earlier than August 31, 2024 or if the Exchange determines to amend
the criteria or rate applicable to the Step-Up Rebate prior to the
end of the sunset period. See id.
---------------------------------------------------------------------------
The Exchange proposes to amend the Step-Up Rebate described in
footnote #4 of the NBBO Setter Plus Table to establish an alternative
volume calculation method for Equity Members to achieve the Step-Up
Rebate, which will be in addition to the current volume calculation
method for the Step-Up Rebate. The proposed alternative volume
calculation method will provide the same requirements as the current
Step-Up Rebate volume calculation requirements, except when calculating
both the numerator (ADAV) and the denominator (TCV), executions of
orders in securities priced below $1.00 per share (``sub-dollar
volume'') across all Tapes will be excluded. Accordingly, with the
addition of the alternative volume calculation method to the footnote
describing the Step-Up Rebate, footnote #4 of the NBBO Setter Plus
Table will provide as follows:
An Equity Member may qualify for a Step-Up Rebate of ($0.0001)
per share by satisfying the following requirements in the relevant
month: (1) minimum Displayed ADAV as a percentage of TCV of 0.35%;
and (2) increase in the percentage of Displayed ADAV as a percentage
of TCV of at least 0.05% as compared to the Equity Member's February
2024 Displayed ADAV percentage. Alternatively, an Equity Member may
qualify for a Step-Up Rebate of ($0.0001) per share by satisfying
the following requirements in the relevant month: (1) minimum
Displayed ADAV as a percentage of TCV of 0.35% (excluding sub-dollar
volume); and (2) increase in the percentage of Displayed ADAV as
percentage of TCV of at least 0.05% as compared to the Equity
Member's February 2024 Displayed ADAV percentage (excluding sub-
dollar volume). The Step-Up Rebate will expire no later than August
31, 2024.\23\
---------------------------------------------------------------------------
\23\ The Exchange proposes to use a baseline ADAV of 0.00% of
TCV for firms that become Equity Members of the Exchange after
February 2024 for the purpose of the alternative volume calculation
method for the Step-Up Rebate calculation, just as the Exchange does
now for the current Step-Up Rebate calculation. See id.
The Step-Up Rebate, as proposed to be amended, will still expire no
later than August 31, 2024,\24\ which will continue to be stated in the
Fee Schedule. The Exchange will issue an alert to market participants
should the Exchange determine that the Step-Up Rebate will expire
earlier than August 31, 2024 or if the Exchange determines to amend the
criteria or rate applicable to the Step-Up Rebate prior to the end of
the sunset period.
---------------------------------------------------------------------------
\24\ The Exchange notes that at the end of the sunset period,
the Step-Up Rebate will no longer apply unless the Exchange files a
rule filing pursuant to Rule 19b-4 of the Exchange Act with the
Commission to amend the criteria terms or update the baseline month
to a more recent month.
---------------------------------------------------------------------------
The purpose of establishing the proposed alternative volume
calculation method for Equity Members to achieve the Step-Up Rebate,
which excludes sub-dollar volume, is for business and competitive
reasons. Generally, the ratio of consolidated volumes in securities
priced at or above $1.00 per share relative to consolidated volumes
inclusive of securities priced below $1.00 per share is usually stable
from month to month, such that TCV has
[[Page 57976]]
been a reasonable baseline for determining tiered and additive
incentives for Equity Members that execute order in securities priced
at or above $1.00 per share on the Exchange. However, there have been
recent months where volumes in securities priced below $1.00 per share
have been elevated, thereby impacting the ratio mentioned above.
Anomalous rises in sub-dollar volume may have a material adverse
impact on Equity Members' qualifications for the pricing tiers and
enhanced rebates in the NBBO Program, including the additive Step-Up
Rebate, because such qualifications depend upon Equity Members
achieving threshold percentages of volumes as a percentage of TCV, and
an extraordinary rise in sub-dollar volume may significantly elevate
TCV. As a result, Equity Members may find it more difficult to qualify
for or to continue to qualify for their existing incentives during
months where there are such rises in sub-dollar volumes, even if their
volume of executions of orders in securities priced at or above $1.00
per share have not diminished relative to prior months. The Exchange
believes that it would be unfair for its Equity Members that execute
significant volumes in securities priced at or above $1.00 per share on
the Exchange to fail to achieve or to lose their existing incentives
for such volumes due to anomalous behavior that is extraneous to them.
Therefore, the Exchange proposes to amend the NBBO Program to establish
the proposed alternative volume calculation method for the Step-Up
Rebate to provide an alternative option when extraordinary spikes in
sub-dollar volumes may adversely affect an Equity Member's
qualification for such incentive for their executions of orders in
securities priced at or above $1.00 per share.
The NBBO Program currently provides a similar volume calculation
that excludes sub-dollar volume (i.e., volume calculation Method 4),
which calculates Equity Members' volume for purposes of pricing tiers
and incentives by excluding sub-dollar volumes from the calculation,
which may result in the most advantageous volume calculation for such
pricing tiers and incentives.\25\ In addition, at least one competing
equities exchange calculates their members' volume for purposes of
pricing tiers and incentives by excluding sub-dollar volumes from one
calculation and utilizing the most advantageous volume calculation for
such pricing tiers and incentives.\26\ Accordingly, this proposal is
not new or novel.
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\25\ See supra note 9.
\26\ See the Nasdaq Stock Market LLC (``Nasdaq'') Rules, Equity
7: Pricing Schedule, Section 114. Market Quality Incentive Programs,
Section (h)(5) (``For purposes of calculating a member's
qualifications for Tiers 1 and 2 of the QMM Program credits . . .
the Exchange will calculate a member's volume and total Consolidated
Volume twice. First, the Exchange will calculate a member's volume
and total Consolidated Volume inclusive of volume that consists of
executions in securities priced less than $1. Second, the Exchange
will calculate a member's volume and total Consolidated Volume
exclusive of volume that consists of executions in securities priced
less than $1, while also applying distinct qualifying volume
thresholds to each Tier . . . . The Exchange will then assess which
of these two calculations would qualify the member for the most
advantageous credits for the month and then it will apply those
credits to the member.''). See also Securities Exchange Act Release
No. 99535 (February 14, 2024), 89 FR 13125 (February 21, 2024) (SR-
NASDAQ-2024-005).
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Implementation
The proposed fee change is effective beginning July 1, 2024.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \27\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \28\ in
particular, in that it is an equitable allocation of reasonable fees
and other charges among its Equity Members and issuers and other
persons using its facilities. The Exchange also believes that the
proposed rule change is consistent with the objectives of Section
6(b)(5) \29\ requirements that the rules of an exchange be designed to
prevent fraudulent and manipulative acts and practices, and to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, 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, particularly, is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\27\ 15 U.S.C. 78f(b).
\28\ 15 U.S.C. 78f(b)(4).
\29\ 15 U.S.C 78f(b)(5).
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The Exchange operates in a highly fragmented and competitive market
in which market participants can readily direct their order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of sixteen registered equities exchanges, and
there are a number of alternative trading systems and other off-
exchange venues, to which market participants may direct their order
flow. For the month of May 2024, based on publicly available
information, no single registered equities exchange had more than
approximately 14-15% of the total market share of executed volume of
equities trading.\30\ Thus, in such a low-concentrated and highly
competitive market, no single equities exchange possesses significant
pricing power in the execution of order flow. For the month of May
2024, the Exchange represented 1.68% of the total market share of
executed volume of equities trading.\31\ The Commission and the courts
have repeatedly expressed their preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. In Regulation NMS, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues and also recognized that current regulation of the market
system ``has been remarkably successful in promoting market competition
in its broader forms that are most important to investors and listed
companies.'' \32\
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\30\ See the ``Market Share'' section of the Exchange's website,
available at https://www.miaxglobal.com/.
\31\ Id.
\32\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37499 (June 29, 2005).
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The Exchange believes that the ever-shifting market share among the
exchanges from month to month demonstrates that market participants can
shift order flow or discontinue to reduce use of certain categories of
products, in response to new or different pricing structures being
introduced into the market. Accordingly, competitive forces constrain
the Exchange's transaction fees and rebates, and market participants
can readily trade on competing venues if they deem pricing levels at
those other venues to be more favorable. The Exchange believes the
proposal reflects a reasonable and competitive pricing structure
designed to continue to incentivize market participants to direct their
order flow to the Exchange, which the Exchange believes would continue
to enhance liquidity and market quality to the benefit of all Equity
Members and market participants.
The Exchange believes its proposal to amend the NBBO Setter Plus
Table to establish an alternative volume calculation method for Equity
Members to achieve the Step-Up Rebate is reasonable and equitable
because, in its
[[Page 57977]]
absence, Equity Members may experience material adverse impacts on
their ability to qualify for the additive Step-Up Rebate during a month
with an anomalous rise in sub-dollar volumes. The Exchange believes it
is reasonable and equitable to not inadvertently penalize Equity
Members that execute significant volumes on the Exchange due to
anomalous and extraneous trading activities in sub-dollar securities.
The proposed alternative volume calculation method would provide a
means for Equity Members that add displayed liquidity an alternative
method by determining whether calculating ADAV as a percentage of TCV
to include or exclude sub-dollar volume would result in Equity Members
qualifying for the additive Step-Up Rebate. The Exchange would then be
able to apply the most advantageous volume calculation that would
result in the Step-Up Rebate being achieved for each Equity Member. The
Exchange believes that the proposed rule change is equitable and not
unfairly discriminatory because the Exchange does not intend for the
proposal to advantage any particular Equity Member.
The Exchange believes that the proposal to establish the
alternative volume calculation method for the Step-Up Rebate provides a
reasonable means to continue to encourage Equity Members to not only
increase their order flow to the Exchange but also to contribute to
price discovery and market quality on the Exchange by submitting
aggressively priced displayed liquidity in securities priced at or
above $1.00 per share. The Exchange believes that the NBBO Program, as
modified with this proposal, continues to be equitable and not unfairly
discriminatory because it is open to all Equity Members on an equal
basis and provides enhanced rebates that are reasonably related to the
value of the Exchange's market quality associated with greater order
flow by Equity Members that set the NBBO, and the introduction of
higher volumes of orders into the price and volume discovery process.
The Exchange believes the proposal is equitable and not unfairly
discriminatory because it is designed to incentivize the entry of
aggressively priced displayed liquidity that will create tighter
spreads, thereby promoting price discovery and market quality on the
Exchange to the benefit of all Equity Members and public investors.
The Exchange's NBBO Program currently provides for volume
calculation Method 4, which calculates Equity Members' volume for
purposes of pricing tiers and incentives by excluding sub-dollar
volumes from the calculation, which may result in the most advantageous
volume calculation for such pricing tiers and incentives.\33\ The
Exchange notes that at least one other competing equities exchange
calculates their members' volume for purposes of pricing tiers and
incentives by excluding sub-dollar volumes from one calculation and
utilizing the most advantageous volume calculation for such pricing
tiers and incentives.\34\
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\33\ See supra note 9.
\34\ See supra note 26.
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The Exchange believes it is reasonable to continue to use February
2024 as the baseline month for the proposed alternative volume
calculation method for the Step-Up Rebate (with a sunset period of
August 31, 2024) because it will provide a consistent baseline month
for volume calculation purposes for both methods of determining the
Step-Up Rebate. The Exchange believes it is equitable and not unfairly
discriminatory to use February 2024 as the baseline month for the
proposed alternative volume calculation method for the Step-Up Rebate
because the Exchange will use a baseline of 0.00% ADAV for those market
participants that became Equity Members of the Exchange post-February
2024, providing a consistent and equitable approach for those Equity
Members to achieve the Step-Up Rebate.
For the reasons discussed above, the Exchange submits that the
proposal satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of
the Act in that it provides for the equitable allocation of reasonable
dues, fees and other charges among its Equity Members and other persons
using its facilities and is not designed to unfairly discriminate
between customers, issuers, brokers, or dealers. As described more
fully below in the Exchange's statement regarding the burden on
competition, the Exchange believes that its transaction pricing is
subject to significant competitive forces, and that the proposed
rebates described herein are appropriate to address such forces.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed changes will impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act.
Intramarket Competition
The Exchange believes that the proposed change to establish an
alternative volume calculation method for the Step-Up Rebate will not
impose any burden on intramarket competition because it will
incentivize Equity Members to submit additional orders that add
liquidity to the Exchange, thereby contributing to a deeper and more
liquid market and promoting price discovery and market quality on the
Exchange to the benefit of all market participants and enhancing the
attractiveness of the Exchange as a trading venue. In turn, the
Exchange believes that this will continue to encourage market
participants to direct additional order flow to the Exchange. Greater
liquidity benefits all Members by providing more trading opportunities
and encourages Equity Members to send additional orders to the
Exchange, thereby contributing to robust levels of liquidity, which
benefits all market participants. As described above, the opportunity
to qualify for the Step-Up Rebate, as amended, would be available to
all Equity Members that meet the associated requirements, and the
Exchange believes the proposed changes provide such incentives is
reasonably related to the enhanced market quality that they are
designed to promote.
The Exchange intends for its proposal to establish an alternative
volume calculation method for the Step-Up Rebate to provide an
alternative option for Equity Members to achieve such additive rebate
due to anomalous spikes in sub-dollar volumes and is not intended to
provide a competitive advantage to any particular Equity Member. The
proposed alternative volume calculation method will be eligible to all
Equity Members equally in that the Exchange will calculate both volume
calculation methods for the Step-Up Rebate in parallel each month and
apply the most advantageous calculation to each Equity Member's volume
to qualify for the additive Step-Up Rebate. For the foregoing reasons,
the Exchange believes the proposed changes would not impose any burden
on intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Intermarket Competition
The Exchange believes its proposal will benefit competition as the
Exchange operates in a highly competitive market. Equity Members have
numerous alternative venues they may participate on and direct their
order flow to, including fifteen other equities exchanges and numerous
alternative trading systems and other off-exchange venues. As noted
above, no single registered equities exchange currently has more than
approximately 14-15% of the total market share of executed volume of
equities trading.
[[Page 57978]]
Thus, in such a low-concentrated and highly competitive market, no
single equities exchange possesses significant pricing power in the
execution of order flow. Moreover, the Exchange believes that the ever-
shifting market share among the exchanges from month to month
demonstrates that market participants can shift order flow in response
to new or different pricing structures being introduced to the market.
As described above, the proposed change is a competitive proposal
through which the Exchange seeks to encourage certain order flow to the
Exchange and to promote market quality through an alternative pricing
incentive that is similar in structure and purpose to a pricing program
available at the Exchange, as well as at least one competing equities
exchange.\35\ Accordingly, the Exchange believes the proposal would not
burden, but rather promote, intermarket competition by enabling it to
better compete with other exchanges that offer similar incentives to
market participants that enhance market quality.
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\35\ See supra notes 9 and 26.
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Additionally, the Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. Specifically,
in Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues and, also, recognized
that current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \36\ The fact
that this market is competitive has also long been recognized by the
courts. In NetCoalition v. Securities and Exchange Commission, the DC
circuit stated: ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their routing agents, have a wide range of choices of where to
route orders for execution'; [and] `no exchange can afford to take its
market share percentages for granted' because `no exchange possess a
monopoly, regulatory or otherwise, in the execution of order flow from
broker dealers' . . . .'' \37\ Accordingly, the Exchange does not
believe its proposed pricing changes impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
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\36\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
\37\ See NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSE-2006-21)).
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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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act,\38\ and Rule 19b-4(f)(2) \39\ thereunder.
At any time within 60 days of the filing of the proposed rule change,
the Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act. If the Commission takes such
action, the Commission shall institute proceedings to determine whether
the proposed rule should be approved or disapproved.
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\38\ 15 U.S.C. 78s(b)(3)(A)(ii).
\39\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number
SR-PEARL-2024-28 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-2024-28. 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-PEARL-2024-28 and should be
submitted on or before August 6, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-15505 Filed 7-15-24; 8:45 am]
BILLING CODE 8011-01-P
