[Federal Register Volume 82, Number 89 (Wednesday, May 10, 2017)]
[Notices]
[Pages 21855-21858]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09421]
[[Page 21855]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80592; File No. SR-PEARL-2017-19]
Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
PEARL Fee Schedule
May 4, 2017.
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 April 26, 2017, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend the MIAX PEARL Fee
Schedule (the ``Fee Schedule'').
The text of the proposed rule change is available on the Exchange's
Web site at http://www.miaxoptions.com/rule-filings/pearl at MIAX
PEARL's principal office, and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees
set forth in Section 1(a) of the Fee Schedule that apply to MIAX PEARL
Market Makers \3\ to (i) increase the ``Maker'' rebate in Tier 3 for
transactions of options in Penny classes (as defined below), and (ii)
add a new, alternative Volume Criteria to Tier 3 based upon the total
monthly volume executed by a Market Maker solely in SPY options on MIAX
PEARL, expressed as a percentage of total consolidated national volume
in SPY options. The Exchange also proposes to make a minor, non-
substantive technical correction to a definition contained in the
Definitions section of the Fee Schedule, as described below.
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\3\ ``Market Maker'' means a Member registered with the Exchange
for the purpose of making markets in options contracts traded on the
Exchange. See the Definitions Section of the Fee Schedule and
Exchange Rule 100.
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The Exchange currently assesses transaction rebates and fees to all
market participants which are based upon the total monthly volume
executed by the Member \4\ on MIAX PEARL in the relevant, respective
origin type (not including Excluded Contracts) \5\ expressed as a
percentage of TCV.\6\ In addition, the per contract transaction rebates
and fees are applied retroactively to all eligible volume for that
origin type once the respective threshold tier (``Tier'') has been
reached by the Member. The Exchange aggregates the volume of Members
and their Affiliates.\7\ Members that place resting liquidity, i.e.,
orders resting on the book of the MIAX PEARL System,\8\ are paid the
specified ``maker'' rebate (each a ``Maker''), and Members that execute
against resting liquidity are assessed the specified ``taker'' fee
(each a ``Taker''). For opening transactions and ABBO uncrossing
transactions, per contract transaction rebates and fees are waived for
all market participants. Finally, Members are assessed lower
transaction fees and receive lower rebates for order executions in
standard option classes in the Penny Pilot Program \9\ (``Penny
classes'') than for order executions in standard option classes which
are not in the Penny Pilot Program (``Non-Penny classes''), where
Members are assessed higher transaction fees and receive higher
rebates.
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\4\ ``Member'' means an individual or organization that is
registered with the Exchange pursuant to Chapter II of the Exchange
Rules for purposes of trading on the Exchange as an ``Electronic
Exchange Member'' or ``Market Maker.'' Members are deemed
``members'' under the Exchange Act. See the Definitions Section of
the Fee Schedule and Exchange Rule 100.
\5\ ``Excluded Contracts'' means any contracts routed to an away
market for execution. See the Definitions Section of the Fee
Schedule.
\6\ ``TCV'' means total consolidated volume calculated as the
total national volume in those classes listed on MIAX PEARL for the
month for which the fees apply, excluding consolidated volume
executed during the period time in which the Exchange experiences an
``Exchange System Disruption'' (solely in the option classes of the
affected Matching Engine (as defined below)). The term Exchange
System Disruption, which is defined in the Definitions section of
the Fee Schedule, means an outage of a Matching Engine or collective
Matching Engines for a period of two consecutive hours or more,
during trading hours. The term Matching Engine, which is also
defined in the Definitions section of the Fee Schedule, is a part of
the MIAX PEARL electronic system that processes options orders and
trades on a symbol-by-symbol basis. Some Matching Engines will
process option classes with multiple root symbols, and other
Matching Engines may be dedicated to one single option root symbol
(for example, options on SPY may 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 believes that it is reasonable and appropriate
to select two consecutive hours as the amount of time necessary to
constitute an Exchange System Disruption, as two hours equates to
approximately 1.4% of available trading time per month. The Exchange
notes that the term ``Exchange System Disruption'' and its meaning
have no applicability outside of the Fee Schedule, as it is used
solely for purposes of calculating volume for the threshold tiers in
the Fee Schedule. See the Definitions Section of the Fee Schedule.
\7\ ``Affiliate'' means (i) an affiliate of a Member of at least
75% common ownership between the firms as reflected on each firm's
Form BD, Schedule A, or (ii) the Appointed Market Maker of an
Appointed EEM (or, conversely, the Appointed EEM of an Appointed
Market Maker). An ``Appointed Market Maker'' is a MIAX PEARL Market
Maker (who does not otherwise have a corporate affiliation based
upon common ownership with an EEM) that has been appointed by an EEM
and an ``Appointed EEM'' is an EEM (who does not otherwise have a
corporate affiliation based upon common ownership with a MIAX PEARL
Market Maker) that has been appointed by a MIAX PEARL Market Maker,
pursuant to the process described in the Fee Schedule. See the
Definitions Section of the Fee Schedule.
\8\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
\9\ See Securities Exchange Act Release No. 79778 (January 12,
2017), 82 FR 6662 (January 19, 2017) (SR-PEARL-2016-01).
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Transaction rebates and fees applicable to all Market Makers are
currently assessed according to the following table:
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Per contract rebates/fees for Per contract rebates/fees for
Penny classes Non-Penny classes
Origin Tier Volume criteria ---------------------------------------------------------------
Maker Taker Maker Taker
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All MIAX.......................... 1 0.00%-0.10%......................... ($0.25) $0.50 ($0.30) $1.05
PEARL............................. 2 Above 0.10%-0.50%................... (0.40) 0.48 (0.60) 1.03
Market........................... 3 Above 0.50%-0.75%................... (0.45) 0.47 (0.65) 1.02
Makers............................ 4 Above 0.75%......................... (0.48) 0.47 (0.70) 1.02
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The Exchange proposes to increase the ``Maker'' rebate amount in
Tier 3 for Penny classes from ($0.45) to ($0.47). The purpose of
increasing the amount of the rebate is to provide a greater incentive
to Market Makers to reach Tier 3, thereby increasing the potential for
executing more volume at the Exchange and consequently receiving a
higher rebate. The Exchange believes that increased Maker volume by
Market Makers in Penny classes will attract more liquidity to the
Exchange, which in turn will benefit all market participants.
The Exchange also proposes to add a new, alternative Volume
Criteria to Tier 3 based upon the total monthly volume executed by a
Market Maker solely in SPY options on MIAX PEARL, expressed as a
percentage of total consolidated national volume in SPY options.
Pursuant to this alternative Volume Criteria, a Market Maker can now
reach the Tier 3 threshold if the Market Maker's total executed monthly
volume in SPY options on MIAX PEARL is above 2.0% of total consolidated
national monthly volume in SPY options. To be clear, volume that is
from resting liquidity (Maker) and taking liquidity (Taker) in SPY
options are counted towards this alternative Volume Criteria.
Accordingly, a Market Maker could now qualify for Tier 3 rebates and
fees which will then be applicable to all volume executed by the Market
Maker on MIAX PEARL. The two Volume Criteria available for Tier 3 are
now based upon either: (a) The total monthly volume executed by the
Market Maker in all options classes on MIAX PEARL, not including
Excluded Contracts, (as the numerator), expressed as a percentage of
(divided by) TCV (as the denominator); or (b) the total monthly volume
executed by the Market Maker solely in SPY options on MIAX PEARL, not
including Excluded Contracts, (as the numerator), expressed as a
percentage of (divided by) SPY TCV (as the denominator). Once either
Volume Criteria threshold in Tier 3 is reached by the Market Maker, the
Tier 3 per contract rebates and fees will apply to all volume in all
options classes executed by that Market Maker on MIAX PEARL.
In addition to modifying the MIAX PEARL Market Maker table to
insert the new, alternative Volume Criteria threshold in Tier 3, in
order to provide a clear explanation of the requirements for achieving
that alternative Volume Criteria threshold in Tier 3, the Exchange is
proposing to (i) amend the explanatory paragraph beneath the tables in
Section 1(a) of the Fee Schedule, and (ii) add a new definition of
``SPY TCV'' to the Definitions Section of the Fee Schedule. The amended
explanatory paragraph will clarify that (except as otherwise set forth
in the Fee Schedule) the existing Volume Criteria threshold measures
volume in all options classes on MIAX PEARL, and that the new,
alternative Volume Criteria threshold in Tier 3 for Market Makers
measures volume solely in SPY options on MIAX PEARL. The new definition
of SPY TCV in the Definitions Section shall provide the following:
``SPY TCV'' means total consolidated volume in SPY calculated as the
total national volume in SPY for the month for which the fees apply,
excluding consolidated volume executed during the period of time in
which the Exchange experiences an Exchange System Disruption (solely in
SPY options).
The Exchange believes that the proposed alternative Volume Criteria
threshold in Tier 3 for Market Makers will provide another opportunity
for those Market Makers that concentrate their trading activity in
limited options classes such as SPY options to reach a higher tier. The
Exchange believes that creating this alternative Volume Criteria will
extend the Tier 3 fee incentives to Market Makers that concentrate
their trading activity by sending significant volume in SPY options as
compared to other Market Makers that do trade in the broad range of
products listed on the Exchange.
Finally, the Exchange is proposing to make a minor, non-substantive
technical correction to the definition of ``TCV'' to insert the word
``of'' in between the words ``period'' and ``time.'' This word was
inadvertently left out of the sentence when the definition of ``TCV''
was initially adopted, on February 6, 2017.\10\
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\10\ See Securities Exchange Act Release No. 80061 (February 17,
2017), 82 FR 11676 (February 24, 2017) (SR-PEARL-2017-10).
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The proposed rule change is scheduled to become operative May 1,
2017.
2. Statutory Basis
The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \11\ in general, and
furthers the objectives of Section 6(b)(4) of the Act,\12\ in that it
is an equitable allocation of reasonable fees and other charges among
Exchange members and other persons using its facilities, and 6(b)(5) of
the Act,\13\ in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanisms of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4).
\13\ 15 U.S.C. 78f(b)(1) and (b)(5).
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The proposed Maker rebate increase in Penny classes applicable to
Market Makers that reach the Tier 3 threshold is reasonable, equitable
and not unfairly discriminatory because all similarly situated Market
Makers are subject to the same tiered rebates and fees and access to
the Exchange is offered on terms that are not unfairly discriminatory.
The Exchange initially set its Maker rebates at the various volume
levels based upon business determinations and an analysis of current
Maker rebates and volume levels at other exchanges. For competitive and
business reasons, the Exchange believes that a higher rebate to Market
Makers that add liquidity in Penny classes in a higher tier will
encourage Market Makers to execute more volume as a Maker in Penny
classes. The Exchange believes for these reasons that offering a higher
Maker rebate for transactions in Penny classes in Tier 3 for Market
Makers is equitable, reasonable and not
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unfairly discriminatory, and thus consistent with the Act.
Furthermore, the proposed increase to the Maker rebate amount in
Penny classes for Market Makers that reach Tier 3 promotes just and
equitable principles of trade, fosters cooperation and coordination
with persons engaged in facilitating transactions in securities, and
protects investors and the public interest because the proposed
increase in the rebate amount encourages Market Makers to send more
orders to the Exchange which add liquidity in order to achieve higher
thresholds and resulting higher rebates. To the extent that order flow
which adds liquidity in Penny classes is increased by the proposal,
market participants will increasingly compete for the opportunity to
trade on the Exchange, including sending more orders to reach higher
tiers. The resulting increased volume and liquidity will benefit all
Exchange participants by providing more trading opportunities and
tighter spreads.
The Exchange's proposal to adopt the new, alternative Volume
Criteria for Tier 3 based on SPY volume executed on the Exchange is
reasonable, equitable, and not unfairly discriminatory, as it is a form
of pricing based upon trading activity in a select symbol, which is a
common practice on many U.S. options exchanges as a means to
incentivize order flow to be sent to an exchange for execution in
actively traded options classes. The Exchange's affiliate, Miami
International Securities Exchange, LLC (``MIAX Options''), offers
enhanced pricing for transactions in options underlying certain select
symbols.\14\ SPY options are the most actively traded class. Other
options exchanges' fee schedules distinguish by symbol and specifically
assess different fees and rebates for transactions in select symbols
and some exclusively for transactions in SPY options for the same
market participants.\15\
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\14\ See MIAX Options Fee Schedule, Section (1)(a)(iii).
\15\ See Chicago Board Options Exchange Incorporated (``CBOE'')
Fees Schedule; see also NASDAQ PHLX LLC (``PHLX'') Pricing Schedule,
Chapter B, Section I; see further International Securities Exchange
LLC (``ISE'') Fee Schedule, Sections I and II.
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The Exchange is offering an alternative Tier 3 Volume Criteria
threshold based on SPY options volume in Tier 3 because, as previously
mentioned, SPY options are the most actively traded options in the
industry, and therefore the Exchange believes that incentivizing Market
Makers that concentrate their trading activity in SPY options will
consequently increase order flow sent to the Exchange, which will
benefit all market participants through increased liquidity, tighter
markets and order interaction.
The Exchange believes that the proposed non-substantive, technical
correction will promote just and equitable principles of trade, remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it will improve the readability of the
rules. The proposed change does not alter the application of the rule.
As such, the proposed change would foster cooperation and coordination
with persons engaged in facilitating transactions in securities and
would remove impediments to and perfect the mechanism of a free and
open market and a national market system. In particular, the Exchange
believes that the proposed rule change will provide greater clarity to
Members and the public regarding the Exchange's Rules, and it is in the
public interest for rules to be accurate and concise so as to eliminate
the potential for confusion.
B. Self-Regulatory Organization's Statement on Burden on Competition
MIAX PEARL does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed Maker rebate
increase is intended to encourage the posting of liquidity. The
proposed rule change should enable the Exchange to attract and compete
for order flow with other exchanges and the greater rebate for adding
liquidity will encourage Market Makers to submit more order flow that
adds liquidity, not removes it. The Exchange also believes that paying
greater rebates may create competition among market participants.
However, this competition does not create an undue burden on
competition but rather offers all market participants the opportunity
to receive the benefit of the enhanced pricing.
Further, the Exchange believes that the proposed alternative Volume
Criteria threshold in Tier 3 based on SPY options volume applicable to
Market Makers provides greater incentives to those Market Makers that
concentrate their trading activity in SPY options to send additional
SPY orders and creates additional opportunity for additional liquidity
to the market.
The Exchange does not believe that the proposed rule change to make
a technical correction to its rules will impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act. The proposed rule change is not designed to address any
competitive issues but rather is designed to add additional clarity and
to remedy a minor, non-substantive issue in the text of a definition in
the Fee Schedule.
The Exchange notes that it operates in a highly competitive market
in which market participants can readily favor competing venues if they
deem fee levels at a particular venue to be excessive. In such an
environment, the Exchange must continually adjust its rebates and fees
to remain competitive with other exchanges and to attract order flow.
The Exchange believes that the proposed rule changes reflect this
competitive environment because they modify the Exchange's fees in a
manner that encourages market participants to provide liquidity and to
send order flow to the Exchange.
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,\16\ and Rule 19b-4(f)(2) \17\ 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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\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
\17\ 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 (http://www.sec.gov/rules/sro.shtml); or
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Send an email to [email protected]. Please include
File Number SR-PEARL-2017-19 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-2017-19. 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 Web site (http://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 Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-PEARL-2017-19 and should be
submitted on or before May 31, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09421 Filed 5-9-17; 8:45 am]
BILLING CODE 8011-01-P