
[Federal Register Volume 83, Number 248 (Friday, December 28, 2018)]
[Notices]
[Pages 67452-67455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-28184]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84887; File No. SR-PEARL-2018-25]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Exchange 
Rule 519, MIAX PEARL Order Monitor

December 20, 2018.
    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 12, 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 519, MIAX 
PEARL Order Monitor (``MOM'').
    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

[[Page 67453]]

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 519, MIAX PEARL Order 
Monitor (``MOM''). Specifically, the Exchange proposes to amend 
subsection (a)(3) to adopt new subsection (a)(3) and new subsection 
(a)(4) to reorganize the rule text for simplicity and to make 
clarifying changes to add additional detail to align the rule to the 
System's \3\ behavior.
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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.
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    Current subsection (a)(3), Limit Orders to Buy Or Sell, provides 
that the System will reject an incoming limit order from a Market Maker 
\4\ or an EEM \5\ that crosses the contra-side NBBO \6\ by at least (i) 
50% of the opposite side NBBO where the minimum crossing price is 
$0.25, or (ii) $2.50, whichever is less. The rule provides the 
following examples to illustrate those situations where lower priced 
limit orders are rejected because they cross the NBBO by at least 50%: 
(A) (1) If the NBBO on the offer side is $4.00, an order to buy options 
for $6.00 or more will be rejected; and (2) if the NBBO on the bid side 
is $4.00, an order to sell options for $2.00 or less will be rejected. 
(B) The following are examples of those situations where higher priced 
limit orders are rejected because they cross the NBBO by $2.50 or more: 
(1) If the NBBO on the offer side is $12.00, an order to buy options 
for $14.50 or more will be rejected and (2) if the NBBO on the bid side 
is $12.00, an order to sell options for $9.50 or less will be rejected. 
(C) The following examples illustrate the effect of the qualifier that 
the minimum crossing price of a limit order that crosses the NBBO by at 
least 50% must be at least $0.25: (1) If the NBBO on the offer side is 
$0.10, an order to buy options for $0.15 will not be rejected because 
the minimum crossing price is not $0.25 even though the order crosses 
the contra-side NBBO by 50%; and (2) if the NBBO on the offer side is 
$0.50, an order to buy options for $0.75 or more will be rejected 
because it crosses by 50% of the opposite side NBBO and it meets the 
minimum price of $0.25.
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    \4\ 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 MIAX 
PEARL Rules. See Exchange Rule 100.
    \5\ 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.
    \6\ 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 Exchange now proposes to amend current subsection (3) to create 
a separate subsection for limit orders to buy (proposed subsection 
(3)), and for limit orders to sell (proposed subsection (4)). The 
Exchange believes that creating separate subsections dedicated to buys 
and sells will provide clarity and additional detail to the Exchange's 
rule.
    Proposed subsection (3), Limit Orders to Buy, will provide that for 
options with a National Best Offer (``NBO'') greater than $0.50 the 
System will reject an incoming limit order from a Market Maker or an 
EEM that has a limit price equal to or greater than the NBO by the 
lesser of (i) $2.50, or (ii) 50% of the NBO price. This provision is 
identical in operation as the current rule provision. The proposed rule 
will also provide that for options with an NBO less than or equal to 
$0.50 the System will reject an incoming limit order from a Market 
Maker or an EEM that has a limit price that is equal to or greater than 
the NBO price by $0.25. This provision clarifies the current provision 
and more accurately defines the concept of crossing price which is used 
in the current rule.
    Similar to the current rule, examples are included in the proposed 
rule to demonstrate the operation of the rule in different 
circumstances. The proposed examples provide that (A) if the NBO is 
$12.00 an incoming limit order to buy options for $14.50 or more will 
be rejected; and (B) if the NBO is $0.10 an incoming limit order to buy 
options for $0.15 will not be rejected; whereas if the NBO is $0.10 an 
incoming limit order to buy options for $0.35 will be rejected as the 
limit price of the order is $0.25 greater than the NBO. Proposed 
example A provides an example of an order being rejected when the 
order's limit price ($14.50) is greater than the NBO ($12.00) by the 
lesser of $2.50 or 50% of the NBO price ($6.00). Proposed example B 
demonstrates how the MOM protection works when the NBO of the option is 
$0.50 or less. If the NBO is $0.10 an incoming limit order to buy 
options for $0.15 will not be rejected as the order's limit price is 
not $0.25 greater ($.35) than the NBO price. Example B also 
demonstrates the scenario where an order with a limit price $0.25 
greater than the NBO will be rejected.
    Proposed subsection (4) Limit Orders to Sell, will provide that for 
options with a National Best Bid (``NBB'') equal to or greater than 
$0.25 the System will reject an incoming limit order from a Market 
Maker or an EEM that has a limit price equal to or less than the NBB by 
the lesser of (i) $2.50, or (ii) 50% of the NBB price. The current rule 
similarly provides that the System will reject an incoming limit order 
from a Market Maker or an EEM that crosses the contra-side NBBO by at 
least 50% of the opposite side NBBO, but that also has a minimum 
crossing price of $0.25. When the NBB is $0.25 or less it is not 
feasible for an incoming limit order to be priced 50% through the NBB 
and also have a crossing price of $0.25. Therefore, the Exchange is 
proposing to add rule text to clarify that for options with an NBB of 
$0.25 or less the System will accept any incoming limit order to sell 
from a Market Maker or an EEM. When the NBB is greater than $0.50 any 
incoming limit order to sell priced 50% through the NBB will be for an 
amount greater than $0.25 and will be rejected. The Exchange now 
proposes to align the rule text to the current System behavior in 
certain instances where the NBB is greater than $0.25 but less than 
$0.50. Within this NBB range, the Exchange may receive an order that is 
priced greater than 50% through the NBB but that does not reach the 
$0.25 threshold. For example, an incoming limit order to sell with a 
limit price of $0.10, when the NBB is $.30, is priced more than 50% 
through the NBB, but is only $0.20 away from the NBB. The Exchange's 
System currently rejects this order and the Exchange is proposing to 
amend its rule to remove the $0.25 crossing price condition as the 
Exchange believes that orders that cross the NBB by at least 50% when 
the NBB is greater than $0.25 should be rejected. This provision 
provides clarity and additional detail regarding the handling of 
incoming limit orders to sell that are received when the NBB is greater 
than or less than $0.25.
    Additionally, the proposed rule will include examples to 
demonstrate the operation of the rule in different circumstances. The 
proposed examples provide that (A) if the NBB is $12.00 an incoming 
limit order to sell options for $9.50 or less will be rejected; and (B) 
if the NBB is $0.30 an incoming limit order to sell options for $0.15 
will be rejected; whereas if the NBB is $0.30 an

[[Page 67454]]

incoming limit order to sell options for $0.20 will not be rejected as 
the limit price of the order is not less than 50% of the NBB price. 
Proposed example A provides an example of an order being rejected when 
the order's limit price ($9.50) is less than the NBB ($12.00) by the 
lesser of $2.50 or 50% of the NBB price ($6.00). Proposed example B 
demonstrates how the MOM protection works when the NBB of the option is 
greater than $0.25.
    The Exchange believes its proposed changes provide additional 
detail and clarity to the Exchange's rules concerning order protections 
for incoming limit orders to buy and sell.
2. Statutory Basis
    MIAX PEARL believes that its proposed rule change is consistent 
with Section 6(b) of the Act \7\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 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,\9\ 
investors, and the public, regarding the Exchange's order monitoring 
functionality. 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.
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    \9\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of MIAX PEARL 
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.
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    Currently the Exchange's rule discusses the operation of the MIAX 
PEARL Order Monitor on incoming limit orders to buy or incoming limit 
orders to sell in a single paragraph.\10\ The Exchange now proposes to 
provide separate rule text specifically discussing the MIAX PEARL Order 
Monitor process for incoming limit orders to buy (proposed paragraph 
(a)(3)) and for incoming limit orders to sell (proposed paragraph 
(a)(4)). The Exchange believes that the proposed changes promote just 
and equitable principles of trade and removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system and, in general, protects investors and the public interest by 
providing additional detail and clarity in the Exchange's rules. 
Further, the Exchange believes that providing a clear line of 
delineation for the treatment of orders received when the NBB is less 
than or greater than $0.25 benefits investors and the public by 
establishing clear and unambiguous thresholds regarding the acceptance 
or rejection of orders. Further, the Exchange's proposal provides 
transparency and clarity in the rules and is 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. In particular, the Exchange believes 
that the proposed rule changes will provide greater clarity to Members 
and the public regarding the Exchange's Rules, and it is in the public 
interest for rules to be accurate and concise so as to eliminate the 
potential for confusion.
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    \10\ See Exchange Rule 518(a)(3).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    MIAX PEARL 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 the rule clearly and accurately describes 
the scenarios when a limit order to buy or a limit order to sell will 
be rejected by the Exchange's System. Additionally, the proposed rule 
change provides examples of hypothetical scenarios to provide 
additional detail and clarity to the Exchange's rulebook.

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 \11\ and Rule 19b-4(f)(6) \12\ 
thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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-2018-25 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

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Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-PEARL-2018-25. 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-2018-25 and should be submitted on 
or before January 18, 2019.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Brent J. Fields,
Secretary.
[FR Doc. 2018-28184 Filed 12-27-18; 8:45 am]
 BILLING CODE 8011-01-P


