[Federal Register Volume 85, Number 240 (Monday, December 14, 2020)]
[Notices]
[Pages 80826-80829]
[FR Doc No: 2020-27385]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90590; File No. SR-PEARL-2020-32]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend the
Equities Fee Schedule

December 8, 2020.
    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 December 2, 2020, 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 fee schedule
applicable for MIAX PEARL Equities, an equities trading facility of the
Exchange (the ``Fee Schedule'').\3\ The proposed changes are scheduled
to become operative on December 2, 2020.
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    \3\ See Exchange Rule 1901.
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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 purpose of the proposed rule change is to amend the Fee
Schedule applicable to MIAX PEARL Equities to provide pricing for
securities priced below $1.00 that are executed on MIAX PEARL Equities.
    The Exchange operates in a highly competitive market in which
market participants can readily direct order flow to competing venues
if they deem fee levels at a particular venue to be excessive or
rebates/incentives to be insufficient. More specifically, the Exchange
is only one of several equities venues (including both registered
exchanges and various alternative trading systems) to which market
participants may direct their order flow and execute their trades.
Indeed, equity trading is currently dispersed across 16 exchanges,\4\
31 alternative trading systems,\5\ and numerous broker-dealer
internalizers and wholesalers, all competing for order flow. Based on
publicly available information, no single registered equities exchange
currently has more than approximately 20% of total market share.\6\
Thus, in such a low-concentrated and highly competitive market, no
single equities trading venue possesses significant pricing power in
the execution of trades, and, the Exchange currently represents a very
small percentage of the overall market.
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    \4\ See Cboe Global Markets, U.S Equities Market Volume Summary,
available at https://markets.cboe.com/us/equities/market_share/.
    \5\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of
alternative trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/atslist.htm.
    \6\ See Cboe Global Markets U.S. Equities Market Volume Summary,
available at http://markets.cboe.com/us/equities/market_share/.
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    The purpose of this proposed fee change is for business and
competitive reasons. As a new entrant into the equities market, the
Exchange initially adopted a fee structure that provided that orders in
securities priced below $1.00 would be free that executed at MIAX PEARL
Equities, regardless of whether they add or remove liquidity to
encourage market participants to submit orders to the Exchange. The
Exchange now proposes to charge a standard fee of 0.30% of the total
dollar value of any transaction in securities priced below $1.00 that
removes liquidity from MIAX PEARL Equities. The Exchange also proposes
to provide a standard rebate of 0.30% of the total dollar value of any
transaction in securities priced below

$1.00 that adds displayed or non-displayed liquidity to MIAX PEARL
Equities.
    The proposed rebate for executed orders that add liquidity in
securities priced below $1.00 is intended to increase order flow in
securities priced below $1.00 to MIAX PEARL Equities by incentivizing
Equity Members \7\ to increase the liquidity-providing orders in
securities priced below $1.00 they submit to MIAX PEARL Equities, which
would support price discovery on MIAX PEARL Equities and provide
additional liquidity for incoming orders. The proposed fee for executed
orders that remove liquidity from MIAX PEARL Equities is intended to be
a direct offset of the rebate provided for executed orders that add
liquidity in securities priced below $1.00 so that MIAX PEARL Equities
may remain revenue neutral with respect to such transactions while
attempting to compete with other venues to attract this order flow.
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    \7\ The term ``Equity Member'' means a Member authorized by the
Exchange to transact business on MIAX PEARL Equities. See Exchange
Rule 1901.
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    The proposed fee change will become effective on December 2, 2020.
The Exchange does not propose any other changes to the MIAX PEARL
Equities Fee Schedule.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule
is consistent with Section 6(b) of the Act \8\ in general, and furthers
the objectives of Section 6(b)(4) of the Act \9\ in particular, in that
it is an equitable allocation of reasonable fees and other charges
among its members and issuers and other persons using its facilities.
As discussed above, the Exchange operates in a highly fragmented and
competitive market. The Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. Market
participants can readily direct order flow to competing venues if they
deem fee levels at a particular venue to be excessive or rebates/
incentives to be insufficient. The Exchange believes that the Fee
Schedule reflects a simple and competitive pricing structure, which is
designed to incentivize market participants to add aggressively priced
displayed liquidity and direct their order flow to the Exchange. The
Exchange believes the proposed rebate and fee structure for orders that
add or remove liquidity in securities priced below $1.00 would
incentivize submission of additional liquidity in securities priced
below $1.00, thereby promoting price discovery and deepen liquidity,
enhancing order execution opportunities for all Equity Members and
investors.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    In particular, the Exchange believes that the proposed rebate for
orders that add liquidity in securities priced below $1.00 is
reasonable because it would incentivize Equity Members to direct more
order flow in securities priced below $1.00 to the Exchange. The
Exchange notes that one other exchange provides the same rebate as
proposed herein,\10\ and other exchanges provide rebates for liquidity-
adding transactions in securities priced below $1.00, but that these
are denominated in dollar amounts per share rather than a percentage of
the total dollar amount of the transaction.\11\ The Exchange expects
that the proposed rebate for orders that add liquidity in securities
priced below $1.00 would typically result in a higher overall credit
for a given transaction than the rebates offered by other exchanges,
although the Exchange notes that it may also result in a lower overall
credit for such transactions depending on the number of shares traded
and the total dollar value of the transaction. The Exchange also
believes that the proposed fee for orders that remove liquidity in
securities priced below $1.00 is reasonable because it is in line with
the fees charged by other exchanges for liquidity-removing transactions
in securities priced below $1.00.\12\
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    \10\ See SR-MEMX-2020-14 (filed November 30, 2020), available at
https://info.memxtrading.com/wp-content/uploads/2020/11/SR-MEMX-2020-14.pdf.
    \11\ See, e.g., the Cboe EDGX equities trading fee schedule on
its public website (available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/), which reflects a rebate of
$0.00009 per share for liquidity-adding transactions in securities
priced below $1.00 per share; the NYSE Arca equities trading fee
schedule on its public website (available at https://www.nyse.com/publicdocs/nyse/markets/nysearca/NYSE_Arca_Marketplace_Fees.pdf),
which reflects a rebate of $0.00004 per share for liquidity-adding
transactions in securities priced below $1.00 per share.
    \12\ See supra note 10.
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    The Exchange believes that, given the competitive environment in
which MIAX PEARL Equities currently operates, the proposed pricing
structure, with an offsetting fee and rebate for executions of
transactions in securities priced below $1.00 is a reasonable attempt
to increase liquidity in securities priced below $1.00 on MIAX PEARL
Equities and improve the MIAX PEARL Equities' market share relative to
its competitors while remaining revenue neutral with respect to such
transactions.
    The Exchange also believes that the proposed fee and rebate
structure applicable to executions of transactions in securities priced
below $1.00 is equitably allocated and not unfairly discriminatory
because it applies equally to all Equity Members and is reasonably
related to the value of MIAX PEARL Equities' market quality associated
with higher volume. A number of Equity Members currently transact in
securities priced below $1.00 and they, along with additional Equity
Members that choose to direct order flow in securities priced below
$1.00 to the Exchange, would all qualify for the proposed fee and
rebate. The Exchange believes that maintaining or increasing the
proportion of transactions in securities priced below $1.00 that are
executed on MIAX PEARL Equities would benefit all investors by
deepening the MIAX PEARL Equities' liquidity pool, which would support
price discovery, promote market transparency and improve investor
protection, further rendering the proposed changes reasonable and
equitable.
    Further, the Commission and the courts have repeatedly expressed
their preference for competition over regulatory intervention in
determining prices, products, and services in the securities markets.
In Regulation NMS, 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.'' \13\
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    \13\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005) (File No. S7-10-04) (``Regulation
NMS'').
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    As the Commission itself recognized, the market for trading
services in NMS stocks has become ``more fragmented and competitive.''
\14\ Indeed, equity trading is currently dispersed across 16
exchanges,\15\ 31 alternative trading systems,\16\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow.
Based on

publicly-available information, no single exchange currently has more
than 20% market share (whether including or excluding auction
volume).\17\ Therefore, no exchange possesses significant pricing power
in the execution of equity order flow. More specifically, the Exchange
only recently launched trading operations on September 25, 2020, and
thus has a market share of approximately less than 1% of executed
volume of equities trading.
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    \14\ See Securities Exchange Act Release No. 82873 (March 14,
2018), 83 FR 13008 (March 26, 2018) (File No. S7-05-18) (Transaction
Fee Pilot for NMS Stocks).
    \15\ See Cboe Global Markets, U.S Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/.
    \16\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of
alternative trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/atslist.htm.
    \17\ See supra note 6.
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    The Exchange has designed its proposed pricing structure for
securities priced below $1.00 to balance the need to attract order flow
as a new exchange entrant with the desire to continue to provide a
simple pricing structure to market participants. The Exchange believes
its proposed pricing structure for securities priced below $1.00
structure enables the Exchange to compete for order flow. The Exchange
believes that the ever-shifting market share among the exchanges from
month to month demonstrates that market participants can shift order
flow, or discontinue or reduce use of certain categories of products,
in response to fee changes. With respect to nonmarketable orders which
provide liquidity on an exchange, Equity Members can choose from any
one of the 16 currently operating registered exchanges to route such
order flow. Accordingly, competitive forces reasonably constrain
exchange transaction fees that relate to orders that would provide
displayed liquidity on an exchange. Stated otherwise, changes to
exchange transaction fees can have a direct effect on the ability of an
exchange to compete for order flow. Given this competitive environment,
the Exchange's proposed pricing structure for securities priced below
$1.00 represents a reasonable attempt to attract order flow to a new
exchange entrant.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Rather, the Exchange believes
that the proposed change would encourage the submission of additional
order flow to a public exchange, thereby promoting market depth,
execution incentives and enhanced execution opportunities, as well as
price discovery and transparency for all Equity Members and non-Equity
Members. As a result, the Exchange believes that the proposed change
furthers the Commission's goal in adopting Regulation NMS of fostering
competition among orders, which promotes ``more efficient pricing of
individual stocks for all types of orders, large and small.'' \18\
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    \18\ See supra note 13.
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    The Exchange does not believe that the proposed pricing structure
for securities priced below $1.00 will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. To the contrary, the Exchange believes that the
proposed pricing structure will increase competition and is intended to
draw volume to the Exchange. The Exchange believes that the ever-
shifting market share among the exchanges from month to month
demonstrates that market participants can shift order flow or
discontinue to reduce use of certain categories of products, in
response to new or different pricing structures being introduced into
the market. Accordingly, competitive forces constrain the Exchange's
transaction fees and rebates, and market participants can readily trade
on competing venues if they deem pricing levels at those other venues
to be more favorable. As a new exchange, the Exchange faces intense
competition from existing exchanges and other non-exchange venues that
provide markets for equities trading.
    Further, while pricing incentives do cause shifts of liquidity
between trading centers, market participants make determinations on
where to provide liquidity or route orders to take liquidity based on
factors other than pricing, including technology, functionality, and
other considerations. Consequently, the Exchange believes that the
degree to which its proposed pricing structure for securities priced
below $1.00 could impose any burden on competition is extremely
limited, and does not believe that such pricing structure would burden
competition of Equity Members or competing venues in a manner that is
not necessary or appropriate in furtherance of the purposes of the Act.
    The Exchange does not believe that the proposed pricing structure
for securities priced below $1.00 will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because the proposed pricing structure for
securities priced below $1.00 will apply equally to all Equity Members.
The proposed pricing structure for securities priced below $1.00 is
intended to encourage market participants to add liquidity to the
Exchange by providing a rebate that is comparable to those offered by
other exchanges, which the Exchange believes will help to encourage
Equity Members to send orders to the Exchange to the benefit of all
Exchange participants. As the proposed pricing structure for securities
priced below $1.00 are equally applicable to all market participants,
the Exchange does not believe there is any burden on intramarket
competition.

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,\19\ and Rule 19b-4(f)(2) \20\ 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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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \20\ 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_ADDRESS>Please include
File Number SR-PEARL-2020-32 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-2020-32. 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-2020-32, and should be submitted
on or before January 4, 2021.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27385 Filed 12-11-20; 8:45 am]
BILLING CODE 8011-01-P