[Federal Register Volume 87, Number 106 (Thursday, June 2, 2022)]
[Notices]
[Pages 33518-33528]
[FR Doc No: 2022-11788]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94993; File No. SR-PEARL-2022-23]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX
PEARL Options Fee Schedule To Remove Certain Credits and Increase
Trading Permit Fees

May 26, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 17, 2022, MIAX PEARL, LLC (``MIAX Pearl'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') a proposed
rule change as described in Items I, II, and III, below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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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 Options
Fee Schedule (the ``Fee Schedule'') to amend its monthly Trading Permit
\3\ fees

for Members \4\ and no longer provide two monthly credits associated
with Trading Permit and non-transaction fees.
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    \3\ The term ``Trading Permit'' means a permit issued by the
Exchange that confers the ability to transact on the Exchange. See
Exchange Rule 100.
    \4\ The term ``Member'' means an individual or organization that
is registered with the Exchange pursuant to Chapter II of Exchange
Rules for purposes of trading on the Exchange as an ``Electronic
Exchange Member'' or ``Market Maker.'' Members are deemed
``members'' under the Exchange Act. See Exchange Rule 100 and the
Definitions Section of the Fee Schedule.
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    The text of the proposed rule change is available on the Exchange's
website 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 Fee Schedule to amend the
monthly Trading Permit fees for Members and to no longer provide two
monthly credits associated with Trading Permit and non-transaction
fees. The proposed changes are designed to update the Exchange's
Trading Permit fees to reflect their current value--rather than their
value when MIAX Pearl was a new options exchange five years ago--based
on the Exchange's ability to deliver value to its customers through
technology, liquidity and functionality. Newly-opened exchanges often
charge lower fees for certain services such as memberships to attract
order flow to an exchange, and later amend their fees to reflect the
true value of those services,\5\ absorbing all costs to provide those
services in the meantime. Allowing newly-opened exchanges time to build
and sustain market share before increasing non-transaction fees
encourages market entry and promotes competition. In fact, the Exchange
socialized the proposed fee increases with Members prior to first
implementing the changes. During that process, some Members stated that
they anticipated a potential increase due to the lower rates the
Exchange historically charged. Each of these changes are described
below.
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    \5\ See, e.g., Securities Exchange Act Release No 88211
(February 14, 2020), 85 FR 9847 (February 20, 2020) (SR-NYSENAT-
2020-05), also available at https://www.nyse.com/publicdocs/nyse/markets/nyse-national/rulefilings/filings/2020/SR-NYSENat-2020-05.pdf. (initiating market data fees for the NYSE National exchange
after initially setting such fees at zero); see also Securities
Exchange Act Release No. 93927 (January 7, 2022), 87 FR 2191
(January 13, 2022) (SR-MEMX-2021-19) (introduction of membership
fees by MEMX).
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    A Trading Permit confers the right to transact on the Exchange \6\
and are available to all Members. The Exchange notes that requiring a
Trading Permit to trade on the Exchange and charging a monthly fee for
such is comparable to other monthly membership requirements and
associated fees charged by other exchanges and is described further
below. Trading Permits, like membership fees, grant access and allow
Members to be active on the Exchange, thus providing the ability to
submit orders and trade on the Exchange, in the manner consistent with
the membership type. Without a Trading Permit, or ``membership'' as
referred to by other exchanges, a Member cannot directly trade on the
Exchange. Therefore, a Trading Permit is a means to directly access the
Exchange, which offers meaningful value. The Exchange has not amended
its Trading Permit fees since the fees were first adopted in 2018.\7\
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    \6\ See Exchange Rule 200(a).
    \7\ See Securities Exchange Act Release No. 82867 (March 13,
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
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    The Exchange has two types of Members, Electronic Exchange Members
\8\ (``EEMs'') and Market Makers.\9\ The Exchange currently charges
monthly fees for Trading Permits pursuant to Exchange Rule 200(f),
which varies based on the interface used by the Member and the Member's
average monthly trading volumes. The Exchange provides two interfaces
to access the MIAX Pearl System,\10\ the FIX Interface \11\ and MEO
Interface,\12\ and all Members are able to use either interface based
on their business models and needs. The FIX Interface is the industry-
wide uniform message format and provides lower bandwidth, less
capacity, and fewer Exchange resources. EEMs, who are primarily order
flow providers, are the primary users of the FIX Interface.\13\
Meanwhile, the MEO Interface is the more robust interface offering
lower latency and higher throughput. Market Makers primarily use the
MEO Interface.\14\
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    \8\ The term ``Electronic Exchange Member'' or ``EEM'' means the
holder of a Trading Permit who is a Member representing as agent
Public Customer Orders or Non-Customer Orders on the Exchange and
those non-Market Maker Members conducting proprietary trading.
Electronic Exchange Members are deemed ``members'' under the
Exchange Act. See the Definitions Section of the Fee Schedule and
Exchange Rule 100.
    \9\ The term ``Market Maker'' or ``MM'' means a Member
registered with the Exchange for the purpose of making markets in
options contracts traded on the Exchange and that is vested with the
rights and responsibilities specified in Chapter VI of the Exchange
Rules. See the Definitions Section of the Fee Schedule and Exchange
Rule 100.
    \10\ The term ``System'' means the automated trading system used
by the Exchange for the trading of securities. See Exchange Rule
100.
    \11\ The term ``FIX Interface'' means the Financial Information
Exchange interface for certain order types as set forth in Exchange
Rule 516. See the Definitions Section of the Fee Schedule and
Exchange Rule 100.
    \12\ The term ``MEO Interface'' or ``MEO'' means a binary order
interface for certain order types as set forth in Rule 516 into the
MIAX Pearl System. See the Definitions Section of the Fee Schedule
and Exchange Rule 100.
    \13\ The Exchange does not propose to amend the fees for EEM
Clearing Firms, which is set at $250 per month and not based on the
amount of volume conducted on the Exchange. The term ``EEM Clearing
Firm'' means an EEM that solely clears transactions on the Exchange
and does not connect to the Exchange via either the FIX Interface or
MEO Interface. See the Definitions Section of the Fee Schedule.
    \14\ Today, seven Members that are EEMs and twelve Members that
are Market Makers utilize the MEO Interface. Based on their own
business decisions and needs, some EEMs elect to utilize the MEO
Interface today due to its lower latency and higher throughput.
Also, Members that act as both an EEM and Market Maker may choose to
ulitlize only the MEO Interface for both activities as a means to
streamline their architecture between them and the Exchange. No
Market Maker utilizes the FIX Interface.
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    The Exchange offers three time-in-force modifiers:\15\ Day Limit
(``Day''), Immediate-Or-Cancel (``IOC''), and Good-Till Cancel
(``GTC'').\16\ While all order types are available for use on either
interface, only the time-in-force modifiers of IOC and Day are
available on the MEO Interface.\17\ Market Makers utilize the time-in-
force of Day on orders to be posted on the MIAX Pearl Options Book \18\
and to meet Market

Makers' continuous quoting obligations under Exchange Rule 605(d).\19\
Other Market Makers that primarily remove liquidity tend to be more
latency sensitive and utilize the time-in-force of IOC on orders when
looking to remove liquidity from the MIAX Pearl Options Book. The MEO
Interface allows the submission of Cancel-Replacement orders,\20\ which
allow for the immediate cancellation of a previously received order and
the replacement of that order with a new order with new terms and
conditions.\21\ Cancel-Replacement orders are primarily used by Market
Makers as part of their continuous quoting obligation. Market Makers
primary users of the MEO Interface due to its lower latency, higher
throughput, and available time-in-force instructions and order types
that assist them in satisfying their market making obligations.
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    \15\ See MIAX Pearl Options Exchange User Manual, Section 6,
Order Types, available at https://www.miaxoptions.com/exchange-functionality/pearl (last visited May 16, 2022).
    \16\ See, e.g., Exchange Rule 516.
    \17\ See preamble to Exchange Rule 516 (noting that not all
order types and modifiers are available for use on each of the MEO
Interface and the FIX Interface). See also Section <IP_ADDRESS> of the
MEO Interface Specification, available at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf (indicating that the time--in-force
instructions of IOC and Day are available on the MEO interface).
    \18\ The term ``Book'' means the electronic book of buy and sell
orders and quotes maintained by the System. See Exchange Rule 100.
    \19\ Only the time-in-force modifiers of IOC and Day are
available on the MEO Interface. See id. (noting that not all order
types and modifiers are available for use on each of the MEO
Interface and the FIX Interface). See also MIAX Pearl Options
Exchange MEO Interface Specification, Section <IP_ADDRESS>, available at
https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf (indicating that the time--in-force
instructions of IOC and Day are available on the MEO interface).
    \20\ See MIAX Pearl Options Exchange User Manual, Section 6,
Interfaces and Liquidity Types, available at https://www.miaxoptions.com/exchange-functionality/pearl (last visited May
16, 2022).
    \21\ See Exchange Rule 516(d).
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Removal of Monthly Trading Permit Fee Credits
Monthly Volume Credit
    The Exchange proposes to amend the Definitions section of the Fee
Schedule to delete the definition and remove the credits applicable to
the Monthly Volume Credit for Members. The Exchange established the
Monthly Volume Credit in 2018 \22\ to encourage Members to send
increased Priority Customer \23\ order flow to the Exchange, which the
Exchange applied to the assessment of non-transaction fees for that
Member. Prior to and during periods when this proposal was not in
effect, the Exchange applied a different Monthly Volume Credit
depending on whether the Member connects to the Exchange via the FIX or
MEO Interface. Prior to and during periods when this proposal was not
in effect, the Exchange assessed the Monthly Volume Credit to each
Member that has executed Priority Customer volume along with that of
its affiliates,\24\ not including Excluded Contracts,\25\ of at least
0.30% of MIAX Pearl-listed Total Consolidated Volume (``TCV''),\26\ as
set forth in the following table:
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    \22\ See supra note 7.
    \23\ The term ``Priority Customer'' means a person or entity
that (i) is not a broker or dealer in securities, and (ii) does not
place more than 390 orders in listed options per day on average
during a calendar month for its own beneficial accounts(s). The
number of orders shall be counted in accordance with Interpretation
and Policy .01 of Exchange Rule 100. See the Definitions Section of
the Fee Schedule and Exchange Rule 100, including Interpretation and
Policy .01.
    \24\ ``Affiliate'' means (i) an affiliate of a Member of at
least 75% common ownership between the firms as reflected on each
firm's Form BD, Schedule A, or (ii) the Appointed Market Maker of an
Appointed EEM (or, conversely, the Appointed EEM of an Appointed
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market
Maker (who does not otherwise have a corporate affiliation based
upon common ownership with an EEM) that has been appointed by an EEM
and an ``Appointed EEM'' is an EEM (who does not otherwise have a
corporate affiliation based upon common ownership with a MIAX Pearl
Market Maker) that has been appointed by a MIAX Pearl Market Maker,
pursuant to the following process. A MIAX Pearl Market Maker
appoints an EEM and an EEM appoints a MIAX Pearl Market Maker, for
the purposes of the Fee Schedule, by each completing and sending an
executed Volume Aggregation Request Form by email to
[email protected] no later than 2 business days prior to
the first business day of the month in which the designation is to
become effective. Transmittal of a validly completed and executed
form to the Exchange along with the Exchange's acknowledgement of
the effective designation to each of the Market Maker and EEM will
be viewed as acceptance of the appointment. The Exchange will only
recognize one designation per Member. A Member may make a
designation not more than once every 12 months (from the date of its
most recent designation), which designation shall remain in effect
unless or until the Exchange receives written notice submitted 2
business days prior to the first business day of the month from
either Member indicating that the appointment has been terminated.
Designations will become operative on the first business day of the
effective month and may not be terminated prior to the end of the
month. Execution data and reports will be provided to both parties.
See the Definitions Section of the Fee Schedule.
    \25\ ``Excluded Contracts'' means any contracts routed to an
away market for execution. See the Definitions Section of the Fee
Schedule.
    \26\ ``TCV'' means total consolidated volume calculated as the
total national volume in those classes listed on MIAX Pearl for the
month for which the fees apply, excluding consolidated volume
executed during the period of time in which the Exchange experiences
an Exchange System Disruption (solely in the option classes of the
affected Matching Engine). See the Definitions Section of the Fee
Schedule.

------------------------------------------------------------------------
                                                                Monthly
                  Type of member connection                      volume
                                                                 credit
------------------------------------------------------------------------
Member that connects via the FIX Interface...................       $250
Member that connects via the MEO Interface...................      1,000
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    If a Member connects via both the MEO Interface and FIX Interface
and qualifies for the Monthly Volume Credit based upon its Priority
Customer volume, the greater Monthly Volume Credit shall apply to such
Member. Prior to and during periods when this proposal was not in
effect, the Monthly Volume Credit was a single, once-per-month credit
towards the aggregate monthly total of non-transaction fees assessable
to a Member.
    The Exchange proposes an amendment to the Definitions section of
the Fee Schedule to delete the definition and remove the Monthly Volume
Credit. The Exchange established the Monthly Volume Credit when it
first launched operations to encourage members to increase their order
flow by providing a credit to those that exceeded a volume threshold.
The Exchange believes that the Exchange's existing Priority Customer
rebates and fees will continue to allow the Exchange to remain highly
competitive and continue to attract order flow and maintain market
share even without the Monthly Volume Credit.
Trading Permit Fee Credit
    The Exchange proposes to amend Section 3)b) of the Fee Schedule to
remove the Trading Permit fee credit that is denoted in footnote ``*''
below the Trading Permit fee table. Prior to and during periods when
this proposal was not in effect, the Trading Permit fee credit was
applicable to Members that connected via both the MEO and FIX
Interfaces. Members who connect via both the MEO and FIX Interfaces are
assessed the rates for both types of Trading Permits, but these Members
received a $100 monthly credit towards the Trading Permit fees
applicable to the MEO Interface prior to and during periods when this
proposal was not in effect. The Exchange proposes to remove the Trading
Permit fee credit and delete footnote ``*'' from Section 3)b) of the
Fee Schedule.
    The Exchange established the Trading Permit fee credit when it
first launched operations to attract order flow and increase membership
by lowering the costs for Members that connect via the MEO Interface
and FIX Interface. The Trading Permit fee credit has achieved its
purpose and the Exchange now believes that it is appropriate to remove
this credit in light of the current operating conditions and membership
population on the Exchange.
Amendments to Monthly Trading Permit Fees
    The Exchange proposes to amend the Fee Schedule to amend the fees
for Trading Permits. As a self-regulatory organization, the Exchange's
membership department reviews applicants to ensure that each
application complies with Exchange

Rule 200 as well as other requirements for membership.\27\ Applicants
must meet the Exchange's qualification criteria prior to approval. The
new member review includes, but is not limited to, the registration and
qualification of associated persons, financial health of the proposed
member, the validity of the required clearing relationship, and the
history of disciplinary matters. Approved new Members are required to
comply with Exchange's By-Laws and Rules and are subject to regulation
by the Exchange.
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    \27\ The Exchange's Membership Department must ensure, among
other things, that an applicant is not statutorily disqualified.
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    The Exchange believes that there are many factors that may cause a
market participant to decide to become a member of a particular
exchange. Among various factors, the Exchange believes market
participants consider: (i) An exchange's available liquidity in options
series; (ii) trading functionality offered on a particular market;
(iii) product offerings; (iv) customer service on an exchange; and (v)
transactional pricing. The Exchange believes that the decision to
become a member of an exchange, particularly as a registered market
maker, is a complex one that is not solely based on non-transactional
costs assessed by an exchange. Market participants weigh the tradeoff
between where they choose to deploy liquidity versus where trading
opportunities exist. Of course, the cost of membership may factor into
a decision to become a member of a certain exchange, but the Exchange
believes it is by no means the only factor when comparing exchanges.
    The Exchange assesses Trading Permit fees based upon the monthly
total volume executed by the Member and its Affiliates on the Exchange
across all origin types, not including Excluded Contracts, as compared
to the total TCV in all MIAX Pearl-listed options. The Exchange adopted
a tier-based fee structure based upon the volume-based tiers detailed
in the definition of ``Non-Transaction Fees Volume-Based Tiers'' \28\
in the Definitions section of the Fee Schedule. The Exchange also
assesses Trading Permit fees based upon the type of interface used by
the Member to connect to the Exchange--the FIX Interface and/or the MEO
Interface.
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    \28\ See the Definitions Section of the Fee Schedule for the
monthly volume thresholds associated with each Tier.
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    Current Trading Permit Fees. Prior to and during periods when this
proposal was not in effect, each Member who connected to the System via
the FIX Interface was assessed the following monthly Trading Permit
fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $250;
    (ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to
0.60%, $350; and
    (iii) if its volume falls within the parameters of Tier 3 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.60%, $450.
    Each Member who connected to the System via the MEO Interface was
assessed the following monthly Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $300;
    (ii) If its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to
0.60%, $400; and
    (iii) if its volume falls within the parameters of Tier 3 of the
Non-Transaction Fees Volume-Based Tiers, or volume above 0.60%, $500.
    Proposed Trading Permit Fees. As discussed below, the pull on
Exchange resources associated with the review of membership
applications and the surveillance and retention of increased message
traffic due to increased trading volumes continue to increase since the
Trading Permit fee was first adopted in 2018.\29\ The Exchange proposes
to amend its Trading Permit fees as follows. Each Member who connects
to the System via the FIX Interface will be assessed the following
monthly Trading Permit fees:
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    \29\ See supra note 7.
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    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $500;
    (ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, $1,000; and
    (iii) if its volume falls within the parameters of Tier 3 of the
Non-Transaction Fees Volume-Based Tiers, $1,500.
    Each Member who connects to the System via the MEO Interface will
be assessed the following monthly Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $2,500;
    (ii) if its volume falls within the parameters of Tier 2 of the
Non-Transaction Fees Volume-Based Tiers, $4,000; and
    (iii) if its volume falls within the parameters of Tier 3 of the
Non-Transaction Fees Volume-Based Tiers, $6,000.
    As discussed above, both the MEO Interface and FIX Interface are
available to all Members and each Member may choose which interface to
utilize based on their own business needs. The MEO Interface is
primarily used by Market Makers due to its robustness, lower latency,
and higher throughput and, as discussed below, utilizes greater
Exchange resources due to the increased volume of message traffic that
travels through the MEO interface. Trading Permit fees for Members who
connect through the MEO Interface are, therefore, higher than the
Trading Permit fees for Members who connect through the FIX Interface.
The FIX Interface provides lower capacity and bandwidth and, therefore,
utilizes less Exchange resources. The FIX Interface is primarily used
by order flow providers, who tend to be less latency sensitive and
submit less orders and messages than Market Makers.
    The Exchange has not amended its Trading Permit fees since the fees
were first adopted in 2018.\30\ The Exchange notes that its affiliates,
Miami International Securities Exchange, LLC (``MIAX'') and MIAX
Emerald, LLC (``MIAX Emerald''), charge EEMs a similar, fixed flat
trading permit fee of $1,500,\31\ which equals the top tier proposed
herein for users of the FIX Interface and also primarily consists of
EEMs. MIAX and MIAX Emerald also charge tiered trading permit fees to
Market Makers as the Exchange proposes herein for users of the MEO
Interface, which also primarily consists of Market Makers. However, the
Exchange's proposed fees for users of the MEO Interface range from
$2,500 to $6,000 while the fees on MIAX and MIAX Emerald range from
$7,000 to $22,000. The Exchange also proposes to base its pricing on
trading volume while MIAX and MIAX Emerald base their trading permit
fees on number of options classes assigned to the Market Maker or the
percentage of volume in option classes.\32\
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    \30\ Id.
    \31\ See the MIAX Fee Schedule, Section 3)b) and MIAX Emerald
Fee Schedule, Section 3)b), available at https://www.miaxoptions.com/fees (last visited May 16, 2022).
    \32\ Both MIAX and MIAX Emerald charge Market Makers a monthly
fee of $7,000 for up to 10 classes or up to 20% of classes assigned
by volume, $12,000 for up to 40 classes or up to 35% of classes
assigned by volume, $17,000 for up to 100 classes or up to 50% of
classes assigned by volume, or $22,000 for over 100 classes or over
50% of classes assigned by volume up to all classes listed on MIAX
or MIAX Emerald, as applicable. Id.

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    As illustrated by the table below, the Exchange notes that the
proposed fees for the Exchange's Trading Permits are in line with, or
cheaper than, the similar trading permit and membership fees charged by
other options exchanges. The below table also illustrates how the
Exchange has historically undercharged for access via Trading Permits
as compared to other options exchanges. The Exchange believes other
exchanges' membership and trading permit fees are useful examples of
alternative approaches to providing and charging for access and
provides the below table for comparison purposes only to show how the
Exchange's proposed fees compare to fees currently charged by other
options exchanges for similar access.
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    \33\ See NYSE Arca Options Fees and Charges, OTP Trading
Participant Rights, p.1, available at https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf (last visited May 16, 2022). NYSE
Arca's Options Trading Permit fee is the analog to the Exchange's
Trading Permit fee for Members who use the FIX interface. NYSE
Arca's Options Trading Permit fee for Market Makers is the analog
for the Exchange's Trading Permit fee for Members who use the MEO
interface.
    \34\ See NYSE American Options Fee Schedule, Section III,
Monthly Trading Permit, Rights, Floor Access and Premium Product
Fees, p. 23-24, available at https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf
(last visited May 16, 2022). NYSE American's ATP Trading Permit fee
for Clearing Members and Order Flow Providers is the analog for the
Exchange's Trading Permit fee for Members that use the FIX
interface. NYSE American's ATP Trading Permit fee for Market Makers
is the analog for the Exchange's Trading Permit fee for Members that
use the MEO interface.
    \35\ See Nasdaq PHLX Options 7 Pricing Schedule, Section 8.
Membership Fees, available at https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207 (last visited May 16, 2022).
Nasdaq PHLX Options' SQT and RMMO fees is the analog to the
Exchange's Trading Permit fee for Members that use the MEO
Interface.
    \36\ See Nasdaq ISE Options 7 Pricing Schedule, Section 8.A.
Access Services, available at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207 (last visited May 16, 2022).
Nasdaq ISE Options' EAM Access Fee is the analog to the Exchange's
Trading Permit fee for Members that use the FIX Interface. Nasdaq
ISE Options' Primary and Competitive Market Maker Access Fees are
the analog to the Exchange's Trading Permit fee for Members that use
the MEO Interface.
    \37\ See Cboe Fee Schedule, Electronic Trading Permit Fees,
available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf (last visited May 16, 2022). Cboe's Electronic
Access Permit fee and Clearing TPH fee are the analog to the
Exchange's Trading Permit fee for Members that use the FIX
Interface. Cboe's Market Maker Permit fee is the analog to the
Exchange's Trading Permit fee for Members that use the MEO
Interface.
    \38\ See Cboe C2 Fee Schedule, Access Fees, available at https://www.cboe.com/us/options/membership/fee_schedule/ctwo/ (last visited
May 16, 2022). C2's Market Maker Access Permit fee is the analog to
the Exchange's Trading Permit fee for Members that use the MEO
Interface. C2's Electronic Access Permit fee is the analog to the
Exchange's Trading Permit fee for Members that use the FIX
Interface.
    \39\ See ``Membership Fees'' section of the Cboe BZX Options Fee
Schedule, available at https://www.cboe.com/us/options/membership/fee_schedule/bzx (last visited May 16, 2022)/. The Exchange
understands Cboe BZX Options charges the same Membership Fee to all
of its Options Members.
    \40\ Under the Exchange's tiered structure, a Member may trade
approximately 106,000 more contracts on the Exchange than on Cboe
BZX Options and continue to qualify for the Exchange's lowest tier.
For example, a Member would qualify for Tier 1 of the Exchange's
tiered pricing structure where that Member's total volume as a
percentage of TCV is between 0.00% and 0.30%. Assuming an average of
37 million contracts are traded each day during a month, that Member
would qualify for Tier 1 where that Member traded less than 111,000
contracts that day and be charged $500, the same fee as Cboe BZX
Options, where that Member connects via the FIX Interface. On Cboe
BZX Options, the Exchange understands that same member would no
longer qualify for their lowest tier when their ADV equals or
exceeds 5,000 contracts and be charged a fee of $1,000 for that
month.

------------------------------------------------------------------------
                                      Monthly membership/trading permit
             Exchange                                fee
------------------------------------------------------------------------
MIAX Pearl Options (as proposed)..  Trading Permit access via FIX
                                     Interface:
                                    Tier 1: $500.
                                    Tier 2: $1,000.
                                    Tier 3: $1,500.
                                    Trading Permit access via MEO
                                     Interface:
                                    Tier 1: $2,500.
                                    Tier 2: $4,000.
                                    Tier 3: $6,000.
NYSE Arca, Inc. (``NYSE Arca'')     Options Trading Permits:
 \33\.
                                    Office and Clearing Firms: $1,000.
                                    Market Makers: $6,000 for up to 175
                                     option issues.
                                    Additional $5,000 for up to 350
                                     option issues.
                                    Additional $4,000 for up to 1,000
                                     option issues.
                                    Additional $3,000 for all option
                                     issues.
                                    Additional $1,000 for the 5th OTP
                                     and each OTP thereafter.
NYSE American, LLC (``NYSE          ATP Trading Permits:
 American'') \34\.
                                    Clearing Member: $1,000.
                                    Order Flow Provider: $1,000.
                                    Market Makers: $8,000 for up to 60
                                     plus the bottom 45% of option
                                     issues.
                                    Additional $6,000 for up to 150 plus
                                     the bottom 45% of option issues.
                                    Additional $5,000 for up to 500 plus
                                     the bottom 45% of option issues.
                                    Additional $4,000 for up to 1,100
                                     plus the bottom 45% of option
                                     issues.
                                    Additional $3,000 for all option
                                     issues.
                                    Additional $2,000 for 6th to 9th
                                     ATPs (plus additional fee for
                                     premium products).
Nasdaq PHLX LLC (``Nasdaq PHLX'')   Streaming Quote Trader (``SQT'')
 \35\.                               permit fees:
                                    Tier 1 (up to 200 option classes):
                                     $0.00.
                                    Tier 2 (up to 400 option classes):
                                     $2,200.
                                    Tier 3 (up to 600 option classes):
                                     $3,200.
                                    Tier 4 (up to 800 option classes):
                                     $4,200.
                                    Tier 5 (up to 1,000 option classes):
                                     $5,200.
                                    Tier 6 (up to 1,200 option classes):
                                     $6,200.
                                    Tier 7 (all option classes): $7,200.
                                    Remote Market Maker Organization
                                     (``RMMO'') permit fees:
                                    Tier 1 (less than 100 option
                                     classes): $5,000.
                                    Tier 2 (more than 100 and less than
                                     999 option classes): $8,000.
                                    Tier 3 (1,000 or more option
                                     classes): $11,000.
Nasdaq ISE LLC (``Nasdaq ISE'')     Access Fees:
 \36\.
                                    Electronic Access Members
                                     (``EAMs''): $500.
                                    Primary Market Maker: $5,000 per
                                     membership.
                                    Competitive Market Maker: $2,500 per
                                     membership.
Cboe Exchange, Inc. (``Cboe'')      Electronic Trading Permit Fees:
 \37\.
                                    Market Maker: $5,000.

                                    Electronic Access Permit: $3,000.
                                    Clearing TPH Permit: $2,000.
Cboe C2 Exchange, Inc. (``Cboe      Access Permit Fees for Market
 C2'') \38\.                         Makers: $5,000.
                                    Electronic Access Permits: $1,000.
Cboe BZX Exchange, Inc. (``Cboe     $500 where member has an ADV < 5,000
 BZX Options'') \39\.                contracts traded.\40\
                                    $1,000 where member has an ADV >=
                                     5,000 contracts traded.
------------------------------------------------------------------------

Implementation and Procedural History
    The proposed rule change will be immediately effective. The
Exchange initially filed this proposal on July 1, 2021, with the
proposed fees being immediately effective.\41\ Between August 2021 and
February 2022, the Exchange withdrew and refiled the proposed rule
change, each time to meaningfully attempt to provide additional
justification for the proposed fee changes, provide enhanced details
regarding the Exchange's cost methodology, and address questions
contained in the Commission's suspension orders.\42\ The Commission
received one comment letter on the filings.\43\ The Commission again
suspended the proposed fees on February 18, 2022.\44\ The Commission
received one comment letter on that filing.\45\ The Exchange then
provided Trading Permits at the lower rates for the month of March 2022
and absorbed all associated costs with the lower rates.
---------------------------------------------------------------------------

    \41\ See Securities Exchange Act Release No. 92366 (July 9,
2021), 86 FR 37379 (SR-PEARL-2021-32).
    \42\ See Securities Exchange Act Release Nos. 92797 (August 27,
2021), 86 FR 49399 (September 2, 2021) (SR-PEARL-2021-32)
(``Suspension Order 1''); 93555 (November 10, 2021), 86 FR 64254
(November 17, 2021) (SR-PEARL-2021-54); 93895 (January 4, 2022), 87
FR 1217 (January 10, 2022) (SR-PEARL-2021-59).
    \43\ See Letter from Richard J. McDonald, Susquehanna
International Group, LLC (``SIG''), to Vanessa Countryman,
Secretary, Commission, dated September 28, 2021 (``SIG Letter 1'').
    \44\ See Securities Exchange Act Release No. 94287 (February 18,
2022), 87 FR 10837 (February 25, 2022) (SR-PEARL-2022-05)
(``Suspension Order 2'').
    \45\ See Letter from Richard J. McDonald, SIG, to Vanessa
Countryman, Secretary, Commission, dated March 15, 2022 (``SIG
Letter 2'').
---------------------------------------------------------------------------

    On March 30, 2022, the Exchange withdrew the proposed rule change
that was previously suspended by the Commission on February 18, 2022.
After providing Trading Permits at the lower rates for the month of
March 2022, on March 30, 2022, the Exchange submitted a revised
proposal for effectiveness beginning April 1, 2022.\46\ This revised
proposal argued that the proposed fees were constrained by competition
based on a similar filing for permit/membership fees by MEMX LLC
(``MEMX'').\47\ The Commission received one comment letter on that
filing.\48\ The Exchange withdrew this revised proposal and submitted a
further revised filing providing additional support for its competition
based justification on May 17, 2022.
---------------------------------------------------------------------------

    \46\ See Securities Exchange Act Release No. 94696 (April 12,
20222), 87 FR 22987 (April 18, 2022) (SR-PEARL-2022-09).
    \47\ See Securities Exchange Act Release No. 93927 (January 7,
2022), 87 FR 2191 (January 13, 2022) (SR-MEMX-2021-19) (proposal to
adopt monthly membership fees).
    \48\ See Letter from Brian Sopinsky, SIG, to Vanessa Countryman,
Secretary, Commission, dated May 9, 2022 (``SIG Letter 3'').
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \49\ in general, and
furthers the objectives of Section 6(b)(4) of the Act \50\ in
particular, in that it is an equitable allocation of reasonable dues,
fees and other charges among its members and issuers and other persons
using its facilities. The Exchange also believes the proposal furthers
the objectives of Section 6(b)(5) of the Act in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest and is not designed to permit unfair discrimination between
customers, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78f(b).
    \50\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The proposed changes to the pricing schedule are reasonable in
several respects. As a threshold matter, the Exchange is subject to
significant competitive forces in the market for order flow, which
constrains its pricing determinations. The fact that the market for
order flow is competitive has long been recognized by the courts. In
NetCoalition v. Securities and Exchange Commission, the D.C. 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 order-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
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .'' \51\
---------------------------------------------------------------------------

    \51\ See NetCoalition, 615 F.3d at 539 (D.C. Cir. 2010) (quoting
Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR
74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention to determine
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, 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.'' \52\
---------------------------------------------------------------------------

    \52\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------

    Congress directed the Commission to ``rely on `competition,
whenever possible, in meeting its regulatory responsibilities for
overseeing the SROs and the national market system.' '' \53\ As a
result, the Commission has historically relied on competitive forces to
determine whether a fee proposal is equitable, fair, reasonable, and
not unreasonably or unfairly discriminatory. ``If competitive forces
are operative, the self-interest of the exchanges themselves will work
powerfully to constrain unreasonable or unfair behavior.'' \54\
Accordingly, ``the existence of significant competition provides a
substantial basis for finding that the terms of an exchange's fee
proposal are equitable, fair, reasonable, and not unreasonably or
unfairly discriminatory.'' \55\ In its 2019 guidance on fee proposals,
Commission staff indicated that they would look at factors

beyond the competitive environment, such as cost, only if a ``proposal
lacks persuasive evidence that the proposed fee is constrained by
significant competitive forces.'' \56\
---------------------------------------------------------------------------

    \53\ See NetCoalition, 615 F.3d at 534-35; see also H.R. Rep.
No. 94-229 at 92 (1975) (``[I]t is the intent of the conferees that
the national market system evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed.'').
    \54\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \55\ Id.
    \56\ See U.S. Securities and Exchange Commission, ``Staff
Guidance on SRO Rule filings Relating to Fees,'' (May 21, 2019),
available at https://www.sec.gov/tm/staff-guidancesro-rule-filings-fees.
---------------------------------------------------------------------------

    The Exchange believes that there are many factors that may cause a
market participant to decide to become a member of a particular
exchange including: (i) An exchange's available liquidity in options
series; (ii) trading functionality offered on a particular market;
(iii) product offerings; (iv) customer service on an exchange; and (v)
transactional pricing. As discussed above, the Exchange believes that
the decision to become a member of an exchange, particularly as a
registered market maker, is a complex one that is not solely based on
non-transactional costs assessed by an exchange. Market participants
weigh the tradeoff between where they choose to deploy liquidity versus
where trading opportunities exist. Of course, the cost of membership,
ports and market data may factor into a decision to become a member of
a certain exchange, but the Exchange believes it is by no means the
only factor when comparing exchanges.
Market Makers
    Market makers play an important role on options exchanges as they
provide liquidity. In options markets, registered market makers are
assigned options series \57\ and are required to quote in those options
series for a specified time period during the day.\58\ Typically, a
lead or primary market maker \59\ will be required to quote for a
longer period of time during the day as compared to other market makers
registered on an exchange.\60\ Additionally, market makers are
typically required to quote within a certain width on options
markets.\61\ Greater liquidity on options markets benefits all market
participants by providing more trading opportunities and attracting
greater participation by market makers. An increase in the activity of
market makers in turn facilitates tighter spreads. Market participants
are attracted to options markets that have ample liquidity and tighter
spreads in options series.
---------------------------------------------------------------------------

    \57\ See Exchange Rule 602, Phlx, ISE, Nasdaq GEMX, Inc.
(``GEMX''), Nasdaq MRX, Inc. (``MRX''), Nasdaq BX, Inc. (``BX'') and
Nasdaq Options Market (``NOM'') Options 2, Section 3; Cboe Rule
5.50; BOX Exchange LLC (``BOX'') Rule 8030; MIAX Rule 602; and NYSE
Arca Rule 6.35-O.
    \58\ See Exchange Rule 604, ISE, GEMX and MRX, Phlx, BX and NOM
Options 2, Section 5; Cboe Rule 5.52; BOX Rule 8050; MIAX Rule 604;
and NYSE Arca Rule 6.37A-O.
    \59\ Options markets refer to the primary market maker on an
exchange in several ways.
    \60\ See Exchange Rule 604, BX Options 2, Section 4; ISE, GEMX
and MRX, and Phlx Options 2, Section 5; BOX Rule 8055; MIAX Rule
604; and NYSE Arca Rule 6.37A-O.
    \61\ See BX Options 2, Section 4; ISE, GEMX and MRX, Phlx and
NOM Options 2, Section 5; and Cboe Rule 5.52; BOX Rule 8040.
---------------------------------------------------------------------------

Trading Functionality
    An exchange's trading functionality attracts market participants
who may elect, for example, to submit an order into a price improving
auction,\62\ enter a complex order,\63\ or utilize a particular order
type.\64\ Different options exchanges offer different trading
functionality to their members. For example, with respect to priority
and allocation of an order book, some options exchanges have price/time
allocation,\65\ some have a size pro-rata allocation,\66\ while other
exchanges offer both allocation models.\67\ The allocation methodology
on a particular options exchange's order book may attract certain
market participants. Also, the manner in which some options markets
structure their solicitation auction,\68\ or opening process,\69\ may
be attractive to certain market participants. Finally, some exchanges
have trading floors \70\ which may accommodate trading for certain
market participants or trading firms.\71\
---------------------------------------------------------------------------

    \62\ See ISE, GEMX, MRX, Phlx and BX Options 3, Section 13; MIAX
Rule 515A; Cboe Rule 5.37; and BOX Rules 7150 and 7245. The Exchange
does not currently offer a price improving auction.
    \63\ See Phlx and ISE Options 3, Section 14; MIAX Rule 518; Cboe
Rule 5.33; BOX Rule 7240; and NYSE Arca Rule 6.91-O. The Exchange
does not currently offer complex order functionality.
    \64\ See Exchange Rule 516, ISE, GEMX, MRX, Phlx, BX and NOM
Options 3, Section 7; MIAX Rule 516; Cboe Rule 5.6; BOX Rule 7110;
and NYSE Arca Rule 6.62-O.
    \65\ See Exchange Rule 514, Cboe Rule 5.85; BOX Rule 7130; and
NYSE Arca Rule 6.76-O.
    \66\ See Phlx, ISE, GEMX and MRX Options 3, Section 10; and BOX
Rule 7135.
    \67\ See BX Options 3, Section 10. While BX's rule permits both
price/time and size pro-rata allocation, all symbols on BX are
currently designated as Price/Time. See also BOX Rules 7130 and
7135. MIAX's rule permits both Price-Time and Pro-Rata allocation.
See also MIAX Rule 514.
    \68\ See ISE, GEMX and MRX Options 3, Section 11; NYSE American
Rules 971.1NY and 971.2NY; and Cboe Rule 5.39.
    \69\ See Exchange Rule 503, ISE, GEMX, MRX, Phlx, BX and NOM
Options 3, Section 8; Cboe Rule 5.31, MIAX Rule 503, BOX Rule 7070,
and NYSE Arca Rule 6.64-O.
    \70\ Today, Phlx, Cboe, BOX, NYSE Arca, and NYSE American LLC
have a trading floor. Trading floors require an on-floor presence to
execute options transactions.
    \71\ There are certain features of open outcry trading that are
difficult to replicate in an electronic trading environment. The
Exchange has observed, and understands from various market
participants, that they have had difficulty executing certain
orders, such as larger orders and high-risk and complicated
strategies, in an all-electronic trading configuration without the
element of human interaction to negotiate pricing for these orders.
---------------------------------------------------------------------------

Product Offerings
    Introducing new and innovative products to the marketplace designed
to meet customer demands may attract market participants to a
particular options venue. New products in the options industry may
allow market participants greater trading and hedging opportunities, as
well as new avenues to manage risks. The listing of new options
products enhances competition among market participants by providing
investors with additional investment vehicles, as well as competitive
alternatives, to existing investment products. An exchange's
proprietary product offering may attract order flow to a particular
exchange to trade a particular options product.\72\
---------------------------------------------------------------------------

    \72\ See, e.g., options on the Nasdaq-100 Index[supreg]
available on ISE, GEMX and Phlx and Cboe's Market Volatility
Index[supreg]. Currently, the Exchange does not list any proprietary
products.
---------------------------------------------------------------------------

Transaction Pricing
    The pricing available on a particular exchange may impact a market
participant's decision to submit order flow to a particular options
venue. The options industry is competitive. Clear substitutes to the
Exchange exist in the market for options security transaction services;
the Exchange is only one of sixteen options exchanges to which market
participants may direct their order flow and memberships. Within this
environment, market participants can freely, and often do, shift their
order flow and memberships among the Exchange and competing venues in
response to changes in their respective pricing schedules.
Removal of Monthly Volume Credit and Trading Permit Fee Credit
    The Exchange believes its proposal to remove the Monthly Volume
Credit is reasonable, equitable and not unfairly discriminatory because
all market participants will no longer be offered the ability to
achieve the extra credits associated with the Monthly Volume Credit for
submitting Priority Customer volume to the Exchange and access to the
Exchange is offered on terms that are not unfairly discriminatory. The
Exchange believes it is equitable and not unfairly discriminatory to
remove the Monthly Volume Credit from the Fee Schedule for business and
competitive reasons. The Exchange established the Monthly Volume Credit
when it first launched operations to encourage members to increase
their order flow by providing a credit to those that exceeded a volume
threshold. The

Exchange believes that the Exchange's existing Priority Customer
rebates and fees will continue to allow the Exchange to remain highly
competitive and continue to attract order flow and maintain market
share even without the Monthly Volume Credit.
    The Exchange believes its proposal to remove the Trading Permit fee
credit for Members that connect via both the MEO Interface and FIX
Interface is reasonable, equitable and not unfairly discriminatory
because all market participants will no longer be offered the ability
to receive the credit and access to the Exchange is offered on terms
that are not unfairly discriminatory. The Exchange believes it is
equitable and not unfairly discriminatory to remove the Trading Permit
fee credit for business and competitive reasons. The Exchange
established the Trading Permit fee credit to lower the costs for
Members that connect via the MEO Interface and/or FIX Interface as a
means to attract order flow and memberships after the Exchange first
launched operations. The Exchange now believes that it is appropriate
to remove this credit in light of the current operating conditions and
membership on the Exchange.
Trading Permit Fee Increase
    The Exchange believes that there is value in being a Member of the
Exchange, retaining that Membership as the Exchange's market share has
grown, and that the proposed Trading Permit fees are reasonable
because, as illustrated by the above table, they are in the range of
similar types of membership fees charged to analogous categories of
market participants by other exchanges with similar market share.\73\
The proposed monthly Trading Permit fees are lower than or comparable
to the membership and trading permit fees imposed by several other
national securities exchanges that charge such fees.\74\
---------------------------------------------------------------------------

    \73\ See supra notes 33-39 and accompanying text.
    \74\ See id.
---------------------------------------------------------------------------

    The Exchange believes that the proposed monthly Trading Permit fees
are not unfairly discriminatory because they would be assessed equally
across all Members or firms that seek to become Members. As discussed
above, both the MEO Interface and FIX Interface are available to all
Members and each Member may choose which interface to utilize based on
their own business needs. The MEO Interface is primarily used by Market
Makers due to its functionality, robustness, lower latency, and higher
throughput and utilizes greater Exchange resources due to the increased
volume of message traffic that travel through the MEO interface.
Trading Permit fees for Members who connect through the MEO Interface
are higher than the Trading Permit fees for Members who connect through
the FIX Interface. The FIX Interface provides lower capacity and
bandwidth and, therefore, utilizes less Exchange resources. The FIX
Interface is primarily used by order flow providers, who tend to be
less latency sensitive and submit less orders and messages than Market
Makers.
    Over the period from April 2021 until September 2021, the Exchange
processed 3.15 billion messages via the FIX Interface (0.43% of total
messages received). Over that same time period, the Exchange processed
731.4 billion messages (99.57% of total messages received) over the MEO
Interface. This marked difference between the number of FIX and MEO
messages processed, when mapped to servers, software, storage, and
networking results in a much higher allocation of total capital and
operational expense to support the MEO Interface. For one, the Exchange
incurs greater expense in maintaining the resilience of the MEO
Interface to ensure its ongoing operation in accordance with Regulation
SCI. Another, the Exchange must purchase and expand its storage
capacity to retain these increased messages in compliance with its
record keeping obligations. The Exchange's membership application team
reviews each new membership application for compliance with Exchange
rules. The Exchange must also expend additional resources to surveil
and ensure proper regulatory oversight of this increased message
traffic. These pulls on Exchange resources have only increased since it
first adopted the Trading Permit fee in March of 2018 \75\ when the
Exchange's trading volume for that month averaged 3.94%.\76\ Today, the
Exchange's average daily trading volume for May 2022 is 4.56%.\77\ This
additional volume increases the costs to the Exchange to surveil and
regulate its market while also procuring additional capacity to store
and monitor those messages in compliance with its record keeping
obligations under the Exchange Act. Therefore, the proposed monthly
Trading Permit fees are not unfairly discriminatory because they would
be assessed equally across all Members based on the type of interface
and related usage of Exchange resources.
---------------------------------------------------------------------------

    \75\ See supra note 7.
    \76\ See ``Market at a Glance'', available at https://www.miaxoptions.com/ (last visited May 16, 2022).
    \77\ Id.
---------------------------------------------------------------------------

    The Exchange believes that the proposed monthly Trading Permit fees
are not unfairly discriminatory because no broker-dealer is required to
become a Member of the Exchange. Instead, many market participants
awaited the Exchange growing to a certain percentage of market share
before they would join as a Member of the Exchange. In addition, many
market participants still have not joined the Exchange despite the
Exchange's growth in recent years to consistently be approximately 4-5%
of the overall equity options market share. To illustrate, the Exchange
currently has 41 Members.\78\ However, based on publicly available
information regarding a sample of the Exchange's competitors, NYSE
American Options has 75 members, NYSE Arca Options has 71 members, and
Cboe has 94 members.\79\ Accordingly, the vigorous competition among
national securities exchanges provides many alternatives for firms to
voluntarily decide whether membership to the Exchange is appropriate
and worthwhile, and no broker-dealer is required to become a member of
the Exchange. Specifically, neither the trade-through requirements
under Regulation NMS nor broker-dealers' best execution obligations
require a broker-dealer to become a member of every exchange.
---------------------------------------------------------------------------

    \78\ See MIAX Pearl Options Exchange Member Directory, available
at https://www.miaxoptions.com/exchange-members/pearl.
    \79\ See NYSE American Options Membership Directory, available
at https://www.nyse.com/markets/american-options/membership (last
visited March 9, 2022); NYSE Arca Options Membership Directory,
available at https://www.nyse.com/markets/arca-options/membership
(last visited March 9, 2022); Cboe Members and Sponsored
Participants, Form 1 Amendment dated February 17, 2022, Exhibit M,
available at https://www.sec.gov/Archives/edgar/vprr/2200/22000797.pdf (last visited March 9, 2022).
---------------------------------------------------------------------------

    The Exchange acknowledges that competitive forces may require
certain broker-dealers to be members of all equity options exchanges.
However, the Exchange believes that the proposed fees are reasonable,
equitably allocated and not unfairly discriminatory, even for a broker-
dealer that deems it necessary to join the Exchange for business
purposes, as those business reasons should presumably result in revenue
capable of covering the proposed fees.
    The decision to become a member of an exchange, particularly for
registered market makers, is complex, and not solely based on the non-
transactional costs assessed by an exchange. As noted above, specific
factors include, but are not limited to: (i) An exchange's available
liquidity in options series; (ii)

trading functionality offered on a particular market; (iii) product
offerings; (iv) customer service on an exchange; and (v) transactional
pricing. Becoming a member of the exchange does not ``lock'' a
potential member into a market or diminish the overall competition for
exchange services. The decision to become a member of an exchange is
made at the beginning of the relationship, and is no less subject to
competition than trading fees or market data.
    In lieu of becoming a member at each options exchange, a market
participant may join one exchange and elect to have their orders routed
in the event that a better price is available on an away market.
Nothing in the Order Protection Rule requires a firm to become a Member
at the Exchange.\80\ If the Exchange is not at the NBBO, the Exchange
will route an order to any away market that is at the NBBO to prevent a
trade-through and also ensure that the order was executed at a superior
price.\81\
---------------------------------------------------------------------------

    \80\ See Options Order Protection and Locked/Crossed Market Plan
(August 14, 2009), available at https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf.
    \81\ Exchange Members may elect to not route their orders by
marking an order as ``do-not-route.'' In this case, the order would
not be routed.
---------------------------------------------------------------------------

    Some other broker-dealers may not deem it necessary to be a Member
of the Exchange and may elect to access the Exchange through other
means. In lieu of joining an exchange, a third-party may be utilized to
execute an order on an exchange. For example, a third-party broker-
dealer Member of MRX may be utilized by a retail investor to submit
orders into an exchange. An institutional investor may utilize a
broker-dealer, a service bureau,\82\ or request sponsored access \83\
through a member of an exchange in order to submit an order directly to
an options exchange.\84\ A market participant may either pay the costs
associated with becoming a member of an exchange or, in the
alternative, a market participant may elect to pay commissions to a
broker-dealer, pay fees to a service bureau to submit trades, or pay a
member to sponsor the market participant in order to submit trades
directly to an exchange.\85\ Market participants may elect any of the
above models and weigh the varying costs when determining how to submit
trades to an exchange. Depending on the number of orders to be
submitted, technology, ability to control submission of orders, and
projected revenues, a market participant may determine one model is
more cost efficient as compared to the alternatives.
---------------------------------------------------------------------------

    \82\ Service bureaus provide access to market participants to
submit and execute orders on an exchange. On the Exchange, a Service
Bureau may be a Member. Some Members utilize a Service Bureau for
connectivity and that Service Bureau may not be a Member. Some
market participants utilize a Service Bureau who is a Member to
submit orders. As noted herein only Members may submit orders or
quotes through ports.
    \83\ Sponsored Access is an arrangement whereby a member permits
its customers to enter orders into an exchange's system that bypass
the member's trading system and are routed directly to the Exchange,
including routing through a service bureau or other third-party
technology provider.
    \84\ This may include utilizing a Floor Broker and submitting
the trade to one of the five options trading floors.
    \85\ The Exchange notes that it does not have insight into the
economics of such a relationship where a broker-dealer utilizes
another entity to access the Exchanges. It is presumed that a third-
party that provides access to an exchange does so on behalf of
multiple broker-dealers and provides access to multiple exchanges.
It is also presumed that any increased volume that might cause such
third party to achieve a higher Trading Permit pricing tier maybe
offset through achieving a higher rebate on the Exchange or other
economic arrangement between the parties.
---------------------------------------------------------------------------

    In June 2021, the month immediately preceding the initial
implementation of this proposed fee change, the Exchange had 20 users
of the MEO Interface and 28 users of the FIX Interface. These numbers
remained stagnant until August 2021, where one Member that utilized the
MEO Interface ceased utilizing the MEO Interface and again in December
2021 where one Member that utilized the FIX Interface ceased utilizing
the FIX Interface. Also, the Exchange has not experienced any Member
decreasing their trading activity on the Exchange in order to move to a
lower tier and be charged the corresponding lower fee. In fact, between
June 2021 and July 2021, one Member of the MEO Interface moved up from
Tier 1 to Tier 3 due to increasing their trading volume on the Exchange
The Exchange has not experienced a net decrease in subscribers due to
the fee increase, because the Exchange believes numerous considerations
are taken into account when deciding to be a member of an exchange,
including, but not limited to: (i) An exchange's available liquidity in
options series; (ii) trading functionality offered on a particular
market; (iii) product offerings; (iv) customer service on an exchange;
and (v) transactional pricing when socializing the change. Fees are not
the sole consideration. As stated above, the Exchange socialized the
proposed fee increase with Members prior to first implementing the
change. During that process, some Members stated that they anticipated
a potential increase due to the lower rates the Exchange historically
charged.
    Lastly, the Exchange believes the proposed tiered fees provide for
an equitable allocation of reasonable dues, fees and other charges
because it is similar to other tiered pricing structures on other
options exchanges. The Exchange implemented the tiered pricing
structure based on the type of interface and trading volume when it
first adopted Trading Permit fees in 2018 and the Exchange does not
propose to amend the volume requirements associated with each Tier.
Rather, the Exchange simply seeks to amend the associated fees. The
Exchange proposes to charge users of the FIX Interface monthly fees
ranging from $500 to $1,500 based on trading volume. Users of the FIX
Interface are primarily EEMs, which generally consist of order flow
providers. Cboe charges monthly electronic trading permit fees based on
the category of participant, such as $3,000 for Electronic Access
Permit holders and $2,000 for Clearing TPH Permit holders (the Exchange
notes that it only charges $250 per month for EEM Clearing Firms).
Cboe's Electronic Access Permit fee is the analog to the Exchange's
Trading Permit fee for Members that use the FIX Interface and is higher
than the Exchange's proposed highest tier.
    Under the Exchange's tiered structure, a Member may trade
approximately 106,000 more contracts on the Exchange than on Cboe BZX
Options and continue to qualify for the Exchange's lowest Tier. For
example, a Member would qualify for Tier 1 of the Exchange's tiered
pricing structure where that Member's total volume as a percentage of
TCV is between 0.00% and 0.30%. Assuming an average of 37 million
contracts are traded each day during a month, that Member would qualify
for Tier 1 where that Member traded less than an ADV of 111,000
contracts and be charged $500 for the month, the same fee as Cboe BZX
Options, where that Member connects via FIX.\86\ On Cboe BZX Options,
the Exchange understands that same member would no longer qualify for
their lowest tier when their ADV equals or exceeds 5,000 contracts and
be charged a fee of $1,000 for that month.\87\
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    \86\ See ``Membership Fees'' section of the Cboe BZX Options Fee
Schedule, available at https://www.cboe.com/us/options/membership/fee_schedule/bzx (last visited April 13, 2022). The Exchange
understands Cboe BZX Options charges the same Membership Fee to all
of its Options Members.
    \87\ The Exchange proposes to also charge a fee of $1,000 per
month to Members that qualify for Tier 2, the same as BZX's highest
tier. The Exchange acknowledges that the Exchange's Trading Permit
fee would be higher than BZX where a Member qualifies for Tier 3.

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    The proposed Trading Rights Fee compare favorably with those of
other options exchanges. The Exchange's proposed monthly Trading Permit
Fees for users of the MEO Interface, which are primarily Market Makers,
range from $2,500 to $6,000 based on trading volume. Basing such fees
on trading volume is analogous to other options exchanges that base
their similar fees charged to Market Makers based on the number of
options classes traded. For example, NYSE Arca charges Market Makers a
base fee of $6,000 and charges additional fees ranging from $1,000 to
$5,000 on top of the base fee and depending on the options issues
assigned, could result in monthly options trading permit fees ranging
from $6,000 to $19,000 (or higher), which is higher than the Exchange's
highest proposed tier of $6,000. NYSE American charges electronic
Market Makers a base fee of $8,000 and charges additional fees ranging
from $500 to $6,000 on top of the base fee and depending on the options
issues assigned, which could result in monthly options trading permit
fees ranging from $8,000 to $28,500 (or higher), also higher than the
Exchange's highest proposed tier of $6,000.
    Further, the tiered pricing structure does not raise any new
competitive issues as it has been in place since 2018 \88\ and similar
membership pricing structures are utilized at other exchanges. Basing
membership pricing based on volume is not a new or novel concept as
other exchanges employ similar volume requirements based on options
classes traded or assigned.\89\ The Exchange does not propose to amend
its volume criteria, only the associated fees. The Exchange must
consider Members ability to discontinue their memberships when
considering any potential changes to its tiered volume requirements and
that Members ability to transition to another exchange they view offers
more attractive volume thresholds and pricing.
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    \88\ See supra note 7.
    \89\ See supra notes 33-35.
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    The proposed fees, therefore, represent the equitable allocation of
reasonable dues, fees and other charges because the fees are generally
lower than other exchanges and the proposed tiered fees are similar to
other tiered pricing structures on other options exchanges.\90\
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    \90\ The Exchange does not charge a separate fee to Market
Makers for options assignments.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\91\ the Exchange
believes that the proposed rule change would not impose any burden on
intermarket or intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
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    \91\ 15 U.S.C. 78f(8).
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Intra-Market Competition
    The Exchange believes the removal of the Monthly Volume Credit and
Trading Permit fee credit will not place certain market participants at
a relative disadvantage to other market participants because, in order
to attract order flow when the Exchange first launched operations, the
Exchange established these credits to lower the initial fixed cost for
Members. The Exchange now believes that it is appropriate to remove
this credit in light of the current operating conditions, including the
Exchange's overall membership and the current type and amount of volume
executed on the Exchange. The Exchange believes that the Exchange's
rebates and fees will still allow the Exchange to remain highly
competitive such that the Exchange should continue to attract order
flow and maintain market share.
    As described above, the Exchange's proposed Trading Permit fees are
lower than or similar to the cost of membership and trading permits on
other exchanges,\92\ and therefore, may stimulate intramarket
competition by attracting additional firms to become Members on the
Exchange or at least should not deter interested participants from
joining the Exchange. In addition, membership and trading permit fees
are subject to competition from other exchanges. Accordingly, if the
changes proposed herein are unattractive to market participants, it is
likely the Exchange will see a decline in membership as a result. As
stated above, the number of FIX and MEO Interface users remained
stagnant until August 2021, where one Member that utilized the MEO
Interface ceased utilizing that interface and again in December 2021,
where one Member that utilized the FIX Interface ceased utilizing that
interface.
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    \92\ See supra notes 33-39.
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    The Exchange also does not believe charging different fees for MEO
and FIX Interface users and basing the amount of such fees on trading
volume would impose any burden on intermarket or intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. As discussed above, the FIX Interface is the
uniform industry message protocol used by most exchanges and provides
lower throughput and bandwidth than the MEO Interface. Users are free
to use either interface based on their business need and the pricing
structure is aligned with the interface used, its pull on Exchange
resources, and the Member's monthly trading volume. The tiered pricing
structure is based on the type of interface and trading volume in place
on the Exchange today and the Exchange does not propose to amend the
volume requirements associated with each Tier. Rather, it is simply
seeking to amend the associated fees. Basing such fees on trading
volume would may also stimulate intramarket competition because it is
analogous to other exchanges that base like fees on options classes
traded or assigned. A Member may cease being a Member if they believe
the tiered structure is not appropriate or that another exchange
presents a better value. Likewise, a market participant that is not
already a Member may cease membership on another exchange or become a
Member of MIAX Pearl where they deem the Exchange's Trading Permit fee
to be a better value based on its trading activity and business needs.
Inter-Market Competition
    The Exchange operates in a highly competitive market in which
market participants can readily favor one of the 15 competing options
venues if they deem fee levels at a particular venue to be excessive.
Based on publicly-available information, and excluding index-based
options, no single exchange has more than approximately 16% market
share. Therefore, no exchange possesses significant pricing power
regarding memberships or in the execution of multiply-listed equity and
ETF options order flow. Over the course of 2021, the Exchange's market
share has fluctuated between approximately 3-6% of the U.S. equity
options industry.\93\ The Exchange is not aware of any evidence that a
market share of approximately 3-6% provides the Exchange with anti-
competitive pricing power when it comes to competition for memberships.
The Exchange believes that the ever-shifting market share among
exchanges from month to month demonstrates that market participants can
discontinue memberships in response to fee changes. In such an
environment, the Exchange must continually adjust its fees to remain
competitive with other exchanges and to

attract and retain memberships on the Exchange.
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    \93\ See supra note 76.
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    The proposed fee change will not impact intermarket competition
because it will apply to all Members equally. Also, Members are free to
use either the FIX or MEO Interface and may choose the interface that
better meets their business needs based on their trading models and
behavior. The Exchange operates in a highly competitive market in which
market participants can determine whether or not to join the Exchange
based on the value received compared to the cost of joining and
maintaining membership on the Exchange.

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

    As described above, the Commission initially received SIG Letter 1
on its initial proposal.\94\ The Exchange responded to SIG Letter 1 in
its subsequent filing. The Commission also received SIG Letter 2 on a
later filing for the same proposal,\95\ which the Exchange responded to
in a prior filing. The Commission then received SIG Letter 3 on a later
filing for the same proposal.\96\ SIG Letter 3 does not raise any new
issues regarding the proposal and simply repeats prior complaints.
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    \94\ See supra note 43.
    \95\ See supra note 45.
    \96\ See supra note 48.
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    The Exchange initially justified this proposal with cost-based
justifications to support the proposed fee changes. In the Exchange's
prior proposed rule changes, the Exchange determined to utilize a
competition based approach to support the proposed fee changes. Because
the SIG Letters are primarily focused on the Exchange's prior cost
justifications, the Exchange believes SIG's assertions are no longer
germane to the current filing as the Exchange no longer utilizes a cost
justification to support the proposed fees.
    Pursuant to the Guidance, Staff may consider whether a proposed fee
is constrained by significant competitive forces in assessing the
reasonableness of the proposed fee.\97\ This is in line with a recent
filing by MEMX, in which MEMX argued its proposed monthly membership
fee was reasonable because it was constrained by competitive
forces.\98\ MEMX's monthly membership fee filing received no comment
letters and remains in effect today, past the Commission's 60-day
suspension deadline. The Exchange's trading permit fees are the
conceptual equivalent of MEMX's ``membership fee,'' BOX's ``participant
fee'' and ``market maker trading permit fee,'' and other exchanges'
``access'' fees: They are all fees to solely provide access and allow
activity to the specific marketplace. These are all monthly fees
assessed to members for trading on each particular exchange. The
Exchange now argues that its proposed fees are constrained by
competition in the same way MEMX's membership fees are constrained by
competition.
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    \97\ See supra note 56.
    \98\ See supra note 47.
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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,\99\ and Rule 19b-4(f)(2) \100\ 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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    \99\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \100\ 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
     Send an email to [email protected]. Please include
File Number SR-PEARL-2022-23 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-PEARL-2022-23. 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 (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-PEARL-2022-23 and should be submitted on
or before June 23, 2022.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\101\
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    \101\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-11788 Filed 6-1-22; 8:45 am]
BILLING CODE 8011-01-P