[Federal Register Volume 83, Number 79 (Tuesday, April 24, 2018)]
[Notices]
[Pages 17869-17872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-08434]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83060; File No. SR-PEARL-2018-10]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Exchange Rule 
503, Openings on the Exchange

April 18, 2018.
    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 April 6, 2018, 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 Rule 503, 
Openings on the Exchange.
    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

[[Page 17870]]

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 Rule 503, Openings on the 
Exchange. Specifically, the Exchange proposes to amend subsection 
(b)(1)(i) and (b)(1)(ii) to make clarifying changes to add additional 
detail to the rule text which describes the two different scenarios 
that the Exchange uses to direct its Opening Process.\3\ Additionally, 
the Exchange proposes to amend subsection (b)(2) and (b)(3) to make 
additional clarifying changes to align the rule text to the changes 
proposed in subsection (b)(1)(i) and (ii).
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    \3\ See Exchange Rule 503(a)(1).
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    Currently, the Exchange has two separate sets of criteria, either 
of which must be satisfied in order to begin the Opening Process; one 
for when there is a possible trade on MIAX PEARL \4\ and one for when 
there is not.\5\ Specifically, Rule 503(b)(1)(i) states that to begin 
the Opening Process, ``[i]f there is a possible trade on MIAX PEARL, a 
Valid Width NBBO \6\ must be present.'' The Exchange now proposes to 
amend this sentence to remove the phrase ``a possible trade'' and 
replace it with a more comprehensive description of scenarios which, if 
present, would require the presence of a Valid Width NBBO to begin the 
Opening Process, to better align the rule text to the current Exchange 
functionality. The Exchange therefore proposes to amend subsection 
(b)(1)(i) to state, ``[i]f there is locking or crossing interest on 
MIAX PEARL, or interest that locks or crosses the NBBO,\7\ a Valid 
Width NBBO must be present.''
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    \4\ See Exchange Rule 503(b)(1)(i).
    \5\ See Exchange Rule 503(b)(1)(ii).
    \6\ See Exchange Rule 503(a)(4).
    \7\ The term ``NBBO'' means the national best bid or offer as 
calculated by the Exchange based on market information received by 
the Exchange from OPRA. See Exchange Rule 100.
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    The following example demonstrates interest on MIAX PEARL that 
locks or crosses the NBBO.
Example 1
    MIAX PEARL receives a Customer Do Not Route (``DNR'') \8\ to sell 
100 @ $.05 prior to the opening.
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    \8\ A Do Not Route or ``DNR'' order is an order that will never 
be routed outside of the Exchange regardless of the prices displayed 
by away markets. See Exchange Rule 516(g).
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    At 9:30 a.m. MIAX PEARL receives ABBO \9\ market data from one 
other exchange.
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    \9\ The term ``ABBO'' or ``Away Best Bid or Offer'' means the 
best bid(s) or offer(s) disseminated by other Eligible Exchanges 
(defined in Rule 1400(f)) and calculated by the Exchange based on 
market information received by the Exchange from OPRA. See Exchange 
Rule 100.

ABBO: $.05 x $5.00
NBBO: $.05 x $5.00
    The interest to sell @ $.05 on MIAX PEARL locks the NBBO.
    The interest on MIAX PEARL is not routable and there is no other 
interest available on MIAX PEARL in this scenario. The Exchange's rules 
require a Valid Width NBBO \10\ to be present to begin the Opening 
Process. The Exchange believes that requiring the presence of a Valid 
Width NBBO as a condition precedent to starting the Opening Process 
ensures that there is a sufficient quoted market in the options series 
which in turn will ensure that the Exchange's Opening Process 
determines a valid Opening Price.\11\ The Exchange believes this 
requirement provides a level of price protection to orders on its Book 
\12\ and will limit transactions from occurring at the opening at 
potentially erroneous prices.
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    \10\ The Exchange notes that the current calculation of a Valid 
Width NBBO on MIAX PEARL requires the disseminated quotes of at 
least two other exchanges and the quotes of at least one MIAX PEARL 
Market Maker.
    \11\ See Exchange Rule 503(b)(2)(i).
    \12\ The term ``Book'' means the electronic book of buy and sell 
orders and quotes maintained by the System. See Exchange Rule 100.
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    Similarly, the Exchange also proposes to amend subsection 
(b)(1)(ii) to remove the phrase, ``no trade is possible'' and replace 
it with a more comprehensive description of the conditions which would 
result in the Exchange using its second set of criteria, which is not 
changing under this proposal, whereby any one of the conditions may be 
satisfied in order to begin the Opening Process. The Exchange therefore 
proposes to amend subsection (b)(1)(ii) to state, ``[i]f there is no 
locking or crossing interest on MIAX PEARL or interest that locks or 
crosses the NBBO, then the Exchange will open dependent upon one of the 
following: (A) A Valid Width NBBO is present; or (B) A certain number 
of other options exchanges (as determined by the Exchange and posted by 
MIAX PEARL on its website) have disseminated a firm quote on OPRA; or 
(C) A certain period of time (as determined by the Exchange and posted 
by MIAX PEARL on its website) has elapsed.''
    Additionally, the Exchange proposes to amend the heading of 
subsection 503(b)(2) to align the rule text to the proposed changes 
discussed above. Currently, the heading reads, ``Opening Process Where 
There is a Possible Trade on MIAX PEARL.'' The Exchange proposes to 
amend this heading to state, ``Opening Process Where There is Locking 
or Crossing Interest on MIAX PEARL or Interest that Locks or Crosses 
the NBBO.'' Further, the Exchange proposes to amend the heading of 
subsection 503(b)(3) to align the rule text to the proposed changes 
discussed above. Currently, the heading reads, ``Opening Process Where 
There is No Possible Trade on MIAX PEARL.'' The Exchange now proposes 
to amend this heading to state, ``Opening Process Where There is No 
Locking or Crossing Interest on MIAX PEARL and no Interest that Locks 
or Crosses the NBBO.'' The Exchange believes that these proposed 
changes harmonize the rule text with the proposed amendments to 
subsection (b)(1)(i) and (ii).
    The Exchange notes that the proposed changes are clarifying changes 
only that will not alter the current behavior of the Exchange's Opening 
Process. The Opening Process where there is locking or crossing 
interest on MIAX PEARL or interest that locks or crosses the NBBO will 
remain unchanged.\13\ Likewise, the Opening Process for where there is 
no locking or crossing interest on MIAX PEARL and no interest that 
locks or crosses the NBBO will remain unchanged. Orders in the System 
will be handled at the conclusion of the Opening Process in time 
sequence, beginning with the order with the oldest time stamp and may, 
in whole or in part, be placed on the Book, cancelled, executed, 
managed in accordance with Rule 515, or routed in accordance with Rule 
529.\14\
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    \13\ See Exchange Rule 503(b)(2)(i)-(iv).
    \14\ See Exchange Rule 503(b)(3).
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    The proposed rule change provides additional clarification and 
better aligns the rule text to how the Opening Process operates in 
production, and provides consistency in the Exchange's rules

[[Page 17871]]

concerning the operation of the Exchange's Opening Process.
2. Statutory Basis
    MIAX PEARL believes that its proposed rule change is consistent 
with Section 6(b) of the Act \15\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \16\ 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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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed changes to its rulebook add 
additional detail and provide further clarification to Members, 
investors, and the Public, regarding the operation of the Exchange's 
Opening Process. The Exchange believes it is in the interest of 
investors and the public to accurately describe the behavior of the 
Exchange's System in its rules as this information may be used by 
investors to make decisions concerning the submission of their orders. 
Transparency and clarity are consistent with the Act because it removes 
impediments to and helps perfect the mechanism of a free and open 
market and a national market system, and, in general, protects 
investors and the public interest by accurately describing the behavior 
of the Exchange's System.
    Currently the rule requires the presence of a Valid Width NBBO to 
begin the Opening Process when there is locking or crossing interest on 
the Exchange (a possible trade), the additional rule text requires the 
presence of a Valid Width NBBO to begin the Opening Process when there 
is interest that locks or crosses the NBBO, which similarly serves to 
protect routable and non-routable interest on the Book. The Exchange 
believes that requiring a Valid Width NBBO to be present prior to 
beginning the Opening Process when there is locking or crossing 
interest on the Exchange, or interest that locks or crosses the NBBO, 
ensures that the option series is being sufficiently quoted to allow 
meaningful price discovery. The Exchange's current Valid Width NBBO 
calculation requires the disseminated quotes of at least two other 
exchanges and the quotes of at least one MIAX PEARL Market Maker.\17\ 
The Exchange believes that using quotes from competing options 
exchanges, in addition to quotes from its own Market Maker, ensures 
that the Exchange can calculate a valid Opening Price.\18\ The Exchange 
believes that its Valid Width NBBO requirement contributes to the 
operation of a fair and orderly market, and in general, protects 
investors and the public interest by reducing the chance that the 
Exchange could execute opening transactions at a potentially erroneous 
Opening Price.
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    \17\ See supra note 10.
    \18\ See supra note 11.
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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. The proposed rule change 
does not alter any functionality of the Exchange's System and is 
designed to add additional clarity and detail to the Exchange's rules.
    The Exchange does not believe that the proposed rule change will 
impose any burden on inter-market competition as the Rules apply 
equally to all Exchange Members. The proposed rule change is not a 
competitive filing and is intended to enhance the protection of 
investors by ensuring that there is a sufficient quoted market from 
which the Exchange can determine a valid Opening Price. Additionally, 
the proposed rule change provides additional detail and clarity to the 
Exchange's rulebook regarding the Exchange's Opening Process.

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 \19\ and Rule 19b-4(f)(6) \20\ 
thereunder.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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 [email protected]. Please include 
File Number SR- PEARL-2018-10 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-2018-10. 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

[[Page 17872]]

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-2018-10 and should be 
submitted on or before May 15, 2018.

    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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-08434 Filed 4-23-18; 8:45 am]
BILLING CODE 8011-01-P


