
[Federal Register Volume 82, Number 55 (Thursday, March 23, 2017)]
[Notices]
[Pages 14922-14925]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-05737]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80266; File No. SR-PEARL-2017-12]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend MIAX 
PEARL Rules 517A, Aggregate Risk Manager for EEMs (``ARM-E''), and 
517B, Aggregate Risk Manager for Market Makers (``ARM-M'')

March 17, 2017.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on March 6, 2017, MIAX PEARL, LLC (``MIAX PEARL'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rules Rule 
517A, Aggregate Risk Manager for EEMs (``ARM-E''), and 517B, Aggregate 
Risk Manager for Market Makers (``ARM-M'').
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
PEARL's principal office, and at the Commission's Public Reference 
Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Exchange Rules 517A, ARM-E, and 
517B, ARM-M by adopting and adding proposed Interpretations and 
Policies .01 to Rule 517A to state that the MIAX PEARL System \3\ does 
not include in a specific Electronic Exchange Member's (``EEM'') \4\ 
EEM Counting Program (described below) contracts executed as a result 
of an immediate-or-cancel (``IOC'') order \5\ submitted by such EEM, 
and to adopt and add Interpretations and Policies .02 to Rule 517B, 
stating that the System does not include in a specific Market Maker's'' 
\6\ MM Counting Program (described below) contracts executed as a 
result of an immediate-or-cancel (``IOC'') order submitted by such MM.
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    \3\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \4\ 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 Exchange Rule 100.
    \5\ An IOC order is an order that is to be executed in whole or 
in part upon receipt. Any portion not so executed is cancelled. An 
IOC order is not valid during the Opening Process described in Rule 
503. See Exchange Rule 516(e).
    \6\ 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 these Rules. 
See Exchange Rule 100.
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ARM-E
    ARM-E protects MIAX PEARL EEMs and assists them in managing risk by 
maintaining a counting program (``EEM Counting Program'') for each 
participating EEM who has submitted an order in an EEM Specified Option 
Class \7\ using a specified market participant identifier (``MPID'') 
\8\ of the EEM and delivered via the MEO Interface \9\ as described 
herein (an ``EEM ARM Eligible Order''). The EEM Counting Program counts 
the number of contracts executed by an EEM from an EEM ARM Eligible 
Order (the ``EEM ARM Contracts'') within a specified time period that 
has been established by the EEM (the ``EEM Specified Time Period''). 
The EEM Specified Time Period cannot exceed 15 seconds.
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    \7\ An ``EEM Specified Option Class'' is a class which the EEM 
has designated as a class to be protected via ARM-E. See Exchange 
Rule 517A(a).
    \8\ The term ``MPID'' means unique market participant 
identifier. See Exchange Rule 100.
    \9\ The term ``MEO Interface'' means a binary order interface 
for certain order types as set forth in Rule 516 into the MIAX PEARL 
System. See Exchange Rule 100.
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    The EEM may also establish for each EEM Specified Option Class an 
EEM Allowable Engagement Percentage (the ``Allowable Engagement 
Percentage''), which is a number of contracts, divided by the size of 
the orders, executed within the Specified Time Period, equal to or over 
which the ARM-E will be triggered. When an execution of an EEM ARM 
Contract from an EEM ARM Eligible Order occurs, the System will look 
back over the EEM Specified Time Period to determine whether the sum of 
contract executions from such EEM ARM Eligible Order during such EEM 
Specified Time Period triggers the ARM-E.
    The System will engage ARM-E in a particular EEM Specified Option 
Class when the EEM Counting Program has determined that an EEM has 
executed during the EEM Specified Time Period a number of EEM ARM 
Contracts from an EEM ARM Eligible Order equal to or above their EEM 
Allowable Engagement Percentage. ARM-E will then, until the EEM sends a 
notification to the System of the intent to reengage and submits a new 
order in the EEM Specified Option Class: (i) Automatically cancel the 
EEM ARM Eligible Orders in all series of that particular EEM Specified 
Option Class and (ii) reject new orders by the EEM in all series of 
that particular EEM Specified Option Class submitted using the MEO 
Interface
ARM-M
    ARM-M protects MIAX PEARL Market Makers and assists them in 
managing risk by maintaining a counting program (``MM Counting 
Program'') for each Market Maker who has submitted an order in an 
option class (an ``MM Option Class'') delivered via the MEO Interface 
(an ``MM ARM Eligible Order''). The MM Counting Program counts the 
number of contracts executed by a Market Maker from an MM ARM Eligible 
Order (the ``MM ARM Contracts'') within a specified time period that 
has been established by the Market Maker or as a default setting, as 
defined below (the ``MM Specified Time Period''). The MM Specified Time 
Period cannot exceed 15 seconds whether established by the Market Maker 
or as a default setting as described below.
    The Market Maker may also establish for each MM Option Class an MM 
Allowable Engagement Percentage. Unlike ARM-E, under which there is no 
default setting, the Exchange will establish a default MM Specified 
Time

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Period and a default Allowable Engagement Percentage (``default 
settings'') on behalf of a Market Maker that has not established an MM 
Specified Time Period and/or an MM Allowable Engagement Percentage. The 
default MM Allowable Engagement Percentage shall not be less than 100%. 
The default settings will be determined by the Exchange on an Exchange-
wide basis and announced to Members via Regulatory Circular. When an 
execution of an MM ARM Contract from an MM ARM Eligible Order occurs, 
the System will look back over the MM Specified Time Period to 
determine whether the sum of contract executions from such MM ARM 
Eligible Order during such MM Specified Time Period triggers the ARM-M.
    The System will engage ARM-M in a particular MM Option Class when 
the MM Counting Program has determined that a Market Maker has executed 
during the MM Specified Time Period a number of MM ARM Contracts from 
an MM ARM Eligible Order equal to or above their MM Allowable 
Engagement Percentage. ARM-M will then, until the Market Maker sends a 
notification to the System of the intent to reengage and submits a new 
order in the MM Option Class: (i) Automatically cancel the MM ARM 
Eligible Orders in all series of that particular MM Option Class and 
(ii) reject new orders by the Market Maker in all series of that 
particular MM Option Class submitted using the MEO Interface.
The Proposal
    The Exchange is proposing to adopt and add Interpretations and 
Policies .01 to Rule 517A, to state that the System will not include in 
a specific EEM's EEM Counting Program contracts executed as a result of 
an IOC order submitted by such EEM.
    In a parallel proposal, the Exchange is also proposing to adopt and 
add Interpretations and Policies .02 to Rule 517B, to state that the 
System will not include in a specific Market Maker's MM Counting 
Program contracts executed as a result of an IOC submitted by such 
Market Maker.
    ARM-E and ARM-M are designed to assist MIAX PEARL EEMs and Market 
Makers in managing their risk associated with liquidity they send to 
the Exchange. Thus, the EEM and MM Counting Programs will include all 
contracts executed from orders, other than those orders designated as 
IOC, whether the EEM or MM is acting as maker or taker, in the 
calculation of the Allowable Engagement Percentage applicable to the 
affected EEM Specified Option Class or Market Maker in the MM Option 
Class.
    If, however, the same EEM or Market Maker submits an IOC order in 
the EEM Specified Option Class or MM Option Class that is executed 
against another order resting on the MIAX PEARL Book, the number of 
contracts executed from such IOC order would not be included in the 
calculation of the submitting EEM or Market Maker's Allowable 
Engagement Percentage in the EEM Specified Option Class or MM Option 
Class, as applicable. In such a situation, the affected EEM or Market 
Maker is not at any undue or unintended risk caused by the EEM or 
Market Maker's submission of the IOC order.
    The number of contracts executed from an order resting on the Book, 
is, however, included in the calculation of the Allowable Engagement 
Percentage applicable to the EEM or Market Maker that submitted that 
order. A resting order is subject to the risk of exposure that ARM-E 
and ARM-M are designed to mitigate. Therefore the Exchange believes 
that it is reasonable to include contracts executed from a resting 
order, which has a longer time-in-force than an IOC order and is thus a 
greater risk than an IOC order submitted for execution against it. 
Additionally, in the case of a partial execution, the remaining 
contracts in a resting order are still at market risk, while remaining 
contracts from the partial execution of an IOC order are cancelled if 
not executed, thus obviating the need for ARM-E or ARM-M protection. 
Conversely, in the Exchange's experience, an IOC order is an order that 
is designed to target specific, identifiable liquidity resting on the 
Book that the entering Member desires to trade with (remove), and thus 
the Member entering the IOC order does not require the risk management 
protection of the ARM, as the Member entering the IOC order made an 
affirmative decision to attempt to executed that transaction.
    The Exchange therefore believes that the inclusion of the number of 
contracts executed by way of an IOC order submitted by an EEM or Market 
Maker would unnecessarily and artificially inflate the calculation of 
the Allowable Engagement Percentage, and thus ARM-E or ARM-M could 
serve to preclude or prevent the further execution of contracts from 
orders resting on the MIAX PEARL Book (for which ARM-E or ARM-M has 
been triggered unnecessarily by an IOC order they submitted) that were 
submitted by the affected EEM or Market Maker and otherwise remain 
intended for execution.
    The purpose of the proposed rule change is to enable individual 
EEMs and Market Makers to enhance their risk management for an 
individual option class or for multiple classes as market conditions 
warrant, based on their own risk tolerance level and order submission 
or quoting behavior. EEMs and Market Makers will be able to more 
precisely customize their risk management within the MIAX PEARL System 
through the use of IOC orders without triggering ARM-E or ARM-M before 
their actual risk tolerance levels relating to the number of contracts 
executed within a specified time period have been reached. The proposed 
rule change will provide greater ability for EEMs and Market Makers to 
adapt more exact and precise risk controls based on the EEM or Market 
Maker's risk tolerance levels.
    The Exchange notes that the proposed rule is similar to a rule that 
is currently operative on MIAX Options (``MIAX Options''). 
Specifically, Interpretations and Policies .01 to MIAX Options Rule 
612, Aggregate Risk Manager, states that the System does not include 
contracts traded through the use of an eQuote \10\ that is not a Day 
eQuote \11\ in the counting program for purposes of this Rule. eQuotes 
will remain in the System available for trading when the Aggregate Risk 
Manager is engaged.
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    \10\ An eQuote is a quote with a specific time in force that 
does not automatically cancel and replace a previous Standard quote 
or eQuote. An eQuote can be cancelled by the Market Maker at any 
time, or can be replaced by another eQuote that contains specific 
instructions to cancel an existing eQuote. See MIAX Options Rule 
517(a)(2).
    \11\ A Day eQuote is a quote submitted by a Market Maker that 
does not automatically cancel or replace the Market Maker's previous 
Standard quote or eQuote. Day eQuotes will expire at the close of 
trading each trading day. The Exchange reserves the right to limit 
the number of Day eQuotes that a single Market Maker may place on 
the same side of an individual option. The same limit will apply to 
all types of Market Makers. If the Exchange determines to establish 
a limit, it will be no more ten Day eQuotes on the same side of an 
individual option. The Exchange will publish the limit through the 
issuance of a Regulatory Circular. See MIAX Options Rule 
517(a)(2)(i).
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    The inclusion of the number of contracts executed by way of an IOC 
order, which is substantially similar to an IOC eQuote with respect to 
its time-in-force, would unnecessarily and artificially inflate the 
calculation of the Allowable Engagement Percentage in ARM-E and ARM-M 
in the same manner in which an IOC eQuote affects the ARM calculation 
on MIAX Options. This is a similar rationale for the instant proposal 
to exclude IOC orders on MIAX PEARL from the calculation of the 
Allowable Engagement Percentage in ARM-E and ARM-M.

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    The Exchange will announce the implementation date of the proposed 
rule change by Regulatory Circular to be published no later than 60 
days following the operative date of the proposed rule. The 
implementation date will be no later than 60 days following the 
issuance of the Regulatory Circular.
2. Statutory Basis
    MIAX PEARL believes that its proposed rule change is consistent 
with Section 6(b) of the Act \12\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \13\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in, securities, to remove impediments to and 
perfect the mechanisms of a free and open market and a national market 
system and, in general, to protect investors and the public interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    Significantly, the proposed rule change removes impediments to and 
perfects the mechanisms of a free and open market and a national market 
system and, in general, protects investors and the public interest 
because it enhances a risk management tool that is currently available 
to MIAX PEARL EEMs and Market Makers. The exclusion of contracts 
executed from IOC orders submitted by an EEM or Market Maker from the 
calculation of their Allowable Engagement Percentage will enable MIAX 
PEARL EEMs and Market Makers to more efficiently tailor the risk 
management tools provided by the Exchange by ensuring them that 
contracts executed from orders that are not part of their risk 
management strategy will not artificially inflate their Allowable 
Engagement Percentage. This tailored approach further protects 
investors and the public interest by enabling the maximum number of 
contracts in an EEM Specified Option Class or an MM Option Class to be 
executed without unnecessary interruption, all within the EEM or Market 
Maker's risk tolerance level based upon the actual Allowable Engagement 
Percentage.
    As stated above, the proposed exclusion of IOC orders from the 
calculation of the Allowable Engagement Percentage is substantially 
similar to the exclusion of IOC eQuotes from that calculation in the 
MIAX Options ARM protection feature.\14\
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    \14\ See MIAX Options Rule 612.01.
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    The exclusion of the number of contracts executed by way of IOC 
orders from the calculation of the Allowable Engagement Percentage also 
serves to remove impediments to and perfect the mechanisms of a free 
and open market and a national market system by enhancing EEMs' and 
Market Makers' confidence in the Exchange's ability to assist them in 
the accurate measuring of their management of risk, which may result in 
deeper liquidity on the Exchange's Book, serving to benefit and protect 
investors and the public interest.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    On the contrary, the Exchange believes that the proposed rule 
change will foster competition by providing Exchange EEMs and Market 
Makers with the ability to enhance and specifically customize their use 
of the Exchange's risk management tools in order to compete for 
executions and order flow.
    As to inter-market competition, the Exchange believes that the 
proposed rule change should promote competition because it is designed 
to provide Exchange EEMs and Market Makers with accuracy and 
flexibility to modify their risk exposure in order to protect them from 
unusual market conditions or events that may increase their exposure in 
the market.
    For all the reasons stated, 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, and 
believes the proposed change will in fact enhance 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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act\15\ and Rule 19b-4(f)(6) \16\ 
thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-PEARL-2017-12 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-PEARL-2017-12. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than

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those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-PEARL-2017-12 and should be 
submitted on or before April 13, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-05737 Filed 3-22-17; 8:45 am]
 BILLING CODE 8011-01-P


