[Federal Register Volume 84, Number 103 (Wednesday, May 29, 2019)]
[Notices]
[Pages 24843-24846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11101]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85920; File No. SR-PEARL-2019-19]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange 
Rule 515, Execution of Orders

May 22, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 24844]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 16, 2019, MIAX PEARL, LLC (``MIAX PEARL'' or the ``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 515, 
Execution of Orders.
    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 Exchange Rule 515, Execution of 
Orders. Specifically, the Exchange proposes to amend subsection (d)(2), 
Managed Interest Process for Non-Routable Orders, to remove unnecessary 
rule text from subsection (d)(2)(iv) relating to timestamps on orders 
being managed to conform the operation of the rule to the current 
System \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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    Currently, the rule provides that an order subject to the Managed 
Interest Process for Non-Routable Orders under subsection (d)(2) will 
retain its original limit price irrespective of the prices at which 
such order is booked and displayed and will maintain its original 
timestamp, provided however each time the order is booked and displayed 
at a more aggressive Book price, the order will receive a new 
timestamp. All orders that are re-booked and re-displayed pursuant to 
the Managed Interest Process for Non-Routable Orders will retain their 
priority as compared to other orders subject to the Managed Interest 
Process for Non-Routable Orders, based upon the time such order was 
initially received by the Exchange.\4\
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    \4\ See Exchange Rule 515(d)(2)(iv).
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    The Exchange now proposes to remove the provision that each time 
the order is booked and displayed at a more aggressive Book price, the 
order will receive a new timestamp. This provision is unnecessary as 
orders subject to the Managed Interest Process for Non-Routable Orders 
are all managed to the same ABBO,\5\ and the System is maintaining the 
priority of these orders relative to one and other based upon their 
original timestamp. Giving these orders a new timestamp is not 
necessary as their priority relative to one and other will not change. 
Further, the rule already contains a provision that states, ``[a]ll 
orders that are re-booked and re-displayed pursuant to the Managed 
Interest Process for Non-Routable Orders will retain their priority as 
compared to other orders subject to the Managed Interest Process for 
Non-Routable Orders, based upon the time such order was initially 
received by the Exchange.'' \6\
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    \5\ 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.
    \6\ See supra note 4.
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    The Managed Interest Process for Non-Routable Orders provides that 
if the limit price of an order locks or crosses the current opposite 
side NBBO \7\ and the PBBO \8\ is inferior to the NBBO, the System will 
display the order one MPV \9\ away from the current opposite side NBBO, 
and book the order at a price that will lock the current opposite side 
NBBO. Should the NBBO price change to an inferior price level, the 
order's Book price will continuously re-price to lock the new NBBO and 
the managed order's displayed price will continuously re-price one MPV 
away from the new NBBO until (A) the order has traded to and including 
its limit price, (B) the order has traded to and including its price 
protection limit at which time any remaining contracts are cancelled, 
(C) the order is fully executed or (D) the order is cancelled.\10\
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    \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.
    \8\ The term ``PBBO'' means the best bid or offer on the PEARL 
Exchange. See Exchange Rule 100.
    \9\ The term ``MPV'' means Minimum Price Variations. See 
Exchange Rule 509.
    \10\ See Exchange Rule 515(d)(2)(ii).
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    The following example illustrates multiple non-routable orders 
being managed under the Exchange's Managed Interest Process for Non-
Routable Orders.
Example 1

Current Market in XYZ August 50 Calls

ABBO $2.50 (10) x $2.70 (10)
    Post-Only \11\ interest
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    \11\ ``Post-Only Orders'' are orders that will not remove 
liquidity from the Book. Post-Only Orders are to be ranked and 
executed on the Exchange pursuant to Rule 514 (Priority on the 
Exchange), or handled pursuant to Rule 515, as appropriate, and will 
never route away to another trading center. Post-Only Orders are 
evaluated with respect to locking or crossing other orders as 
follows: (i) If a Post-Only Order would lock or cross an order on 
the System, the order will be handled pursuant to the Post-Only 
Process under Rule 515(g); or (ii) if a Post-Only Order would not 
lock or cross an order on the System but would lock or cross the 
ABBO where the PBBO is inferior to the ABBO, the order will be 
handled pursuant to the Managed Interest Process under Rule 515(d). 
The handling of a Post-Only Order may move from one process to the 
other (i.e., a Post-Only Order initially handled under the Post-Only 
Price Process may upon reevaluation be handled under the Managed 
Interest Process if the PBBO changes and the Post-Only Order no 
longer locks or crosses an order on the System but locks or crosses 
the ABBO). See Exchange Rule 516(j).
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    Order 1 buy 100 contracts, Display Price: $2.65, Book Price: 
$2.70, Limit Price: $2.70 [Time of receipt: 10:00:30.100]
    Order 2 buy 100 contracts, Display Price: $2.65, Book Price: 
$2.70, Limit Price: $2.70 [Time of receipt: 10:01:30.100]
    The Post-Only interest cannot be posted at its limit price of 
$2.70 as it would create a locked market, therefore it is managed 
under the Managed Interest Process for Non-Routable Orders as 
described in Exchange Rule 515(d)(2)(ii) and booked at a price that 
locks the current opposite side NBBO and displayed at a price that 
is one MPV away from the opposite side NBBO.

PBBO $2.65 (200) x $2.75 (10)
NBBO $2.65 (200) x $2.70 (10)

    The interest at $2.70 on the away market is executed and the new 
best offer to sell on the away exchange is $2.80 at 10:04:45.100.

ABBO $2.50 (10) x $2.80 (10)

    1. The System will manage the Post-Only interest under the 
Managed Interest Process for Non-Routable Orders and re-book each 
Post-Only Order at its limit price and re-display the order at its 
limit price.
    2. Post-Only Order 1 to buy 100 contracts, Display Price: $2.70, 
Book Price: $2.70. Limit Price: $2.70 [updated at 10:04:45.500].
    3. Post-Only Order 2 to buy 100 contracts, Display Price: $2.70, 
Book Price: $2.70.

[[Page 24845]]

Limit Price: $2.70 [updated at 10:04:46.000--Order 1 retains 
priority over Order 2 based upon the original timestamp of each 
order].
PBBO $2.70 (200) x $2.75 (10)
NBBO $2.70 (200) x $2.75 (10)

Current Market in XYZ August 50 Calls

ABBO $2.50 (10) x $2.80 (10)
PBBO $2.70 (200) x $2.75 (10)
    Post-Only Interest
    Order 1: Buy 100 contracts, Display Price: $2.70, Book Price: 
$2.70, Limit Price: $2.70
    Order 2: Buy 100 contracts, Display Price: $2.70, Book Price: 
$2.70, Limit Price: $2.70
NBBO $2.70 (200) x $2.75 (10)
    4. Post-Only Order 1 to buy 100 contracts is booked and 
displayed at is original and full limit price of $2.70 which is the 
most aggressive permissible price.
    5. Post-Only Order 2 to buy 100 contracts is booked and 
displayed at is original and full limit price of $2.70 which is the 
most aggressive permissible price.
    Order 3 Sell 100 contracts, Limit Price $2.70 is received by the 
Exchange.
    Consider Order 1, Order 2, and Order 3 as Market Maker
    1. Order 1 trades 100 contracts with Order 3 at $2.70.
    2. Order 2 remains on the Book.

Current Market in XYZ August 50 Calls

PBBO $2.70 (100) x $2.75 (10)
ABBO $2.50 (10) x $2.80 (10)
NBBO $2.70 (100) x $2.75 (10)

    The example demonstrates that the relative priority between non-
routable orders remains the same regardless of whether the orders 
receive a new timestamp each time they are booked and displayed at a 
more aggressive Book price. In this example Order One is received 60 
seconds before Order Two, thereby establishing its time priority. If 
Order One and Order Two were to receive new timestamps when each order 
was booked and displayed at a more aggressive price, Order One would 
still retain its priority over Order Two due to the fact that it would 
be handled first in accordance to its original timestamp and as a 
result would receive a timestamp before Order Two.
    The Exchange has a separate Post-Only Price (``POP'') Process \12\ 
which is engaged when the limit price of a Post-Only Order locks or 
crosses the current opposite side PBBO where the PBBO is the NBBO.\13\ 
A Post-Only Order may be managed under the Managed Interest Process for 
Non-Routable Orders or the Post-Only Process depending upon market 
conditions.\14\ A non Post-Only Do Not Route (``DNR'') \15\ order may 
only be managed under the Managed Interest Process for Non-Routable 
Orders. A Post-Only Order subject to the POP Process will receive a new 
timestamp each time the order is booked and displayed at a more 
aggressive Book price.\16\
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    \12\ The Exchange notes that the POP Process is unaffected by 
this proposal.
    \13\ See Exchange Rule 515(g)(1).
    \14\ See supra note 11.
    \15\ 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. A DNR order may execute on the Exchange at a price 
equal to or better than, but not inferior to, the best away market 
price but, if that best away market remains, the DNR order will be 
handled in accordance with the Managed Interest Process described in 
Rule 515(d)(2). See Exchange Rule 516(g).
    \16\ See Exchange Rule 515(g)(3)(iv).
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    Following is an example of the Post-Only Price Process.
Example 2

Current Market in XYZ August 50 Calls

PBBO $2.65 (100) x $2.75 (10)
    Post-Only Interest
    Order 1 buy 10 contracts, Display Price: $2.70, Book Price: 
$2.70, Limit Price: $2.80
    Order 2 buy 10 contracts, Display Price: $2.70, Book Price: 
$2.70, Limit Price: $2.80
ABBO $2.65 (10) x $2.85 (10)
PBBO $2.70 (20) x $2.75 (10)
NBBO $2.70 (20) x $2.75 (10)
    Non Post-Only DNR Interest
    Order 3 buy 20 contracts, Limit price $2.80

    (i) An Incoming Non Post-Only DNR interest arrives to buy at 
$2.80 is executed against the PBO, and the new best offer to sell on 
the exchange becomes $2.85.
    1. Order 3 trades 10 contracts with the PBO at $2.75. The 
balance of Non Post-Only Order 3 to buy 10 contracts is booked and 
displayed at its original limit price of $2.80.

    (ii) The System will advance Order 1 and Order 2 pursuant to the 
POP Process and re-book and re-display at a more aggressive Book 
Price with a new timestamp pursuant to the POP Process.

    2. Post-Only Order 1 to buy 10 contracts is re-booked and re-
displayed with a new time stamp at the Post-Only Order's limit price 
of $2.80.
    3. Post-Only Order 2 to buy 10 contracts is re-booked and re-
displayed with a new time stamp at the Post-Only Order's limit price 
of $2.80.

Updated Market in XYZ August 50 Calls

PBBO $2.80 (30) x $2.85 (10)
    Non Post-Only interest
    Order 3 buy 10 contracts, Display Price: $2.80, Book Price: 
$2.80, Limit Price: $2.80
    Post-Only Interest
    Order 1 buy 10 contracts, Display Price: $2.80, Book Price: 
$2.80, Limit Price: $2.80
    Order 2 buy 10 contracts, Display Price: $2.80, Book Price: 
$2.80, Limit Price: $2.80
ABBO $2.65 (10) x $2.85 (10)
NBBO $2.80 (30) x $2.85 (20)
    Non Post-Only Interest
    Order 4 sell 11 contracts, Limit price $2.80 is received by the 
Exchange.
    (iii) An Incoming Non Post-Only interest arrives to sell at 
$2.80 is executed against the PBB.
    4. Order 3 trades 10 contracts with Order 4 at $2.80. Order 3 is 
exhausted and leaves no balance.
    5. Order 1 trades 1 contract with Order 4 at $2.80. The balance 
of Post-Only Order 1 to buy 9 contracts remains booked and displayed 
at its original limit price of $2.80.
    6. Order 4 is exhausted and leaves no balance.
    7. Order 2 does not trade. Post-Only Order 2 to buy 10 contracts 
remains booked and displayed at its original limit price of $2.80.

Updated Market in XYZ August 50 Calls

ABBO $2.65 (10) x $2.85 (10)
PBBO $2.80 (19) x $2.85 (10)
NBBO $2.80 (19) x $2.85 (20)

    The Exchange's proposal to amend the Managed Interest Process for 
Non-Routable Orders to remove the provision from subsection (d)(iv) 
that provided that each time an order is booked and displayed at a more 
aggressive Book price, the order would receive a new timestamp conforms 
the rule to the operation of the System. It is not necessary for the 
System to give these orders a new timestamp each time that the order is 
re-booked and re-displayed as all orders being managed under the 
Managed Interest Process for Non-Routable Orders will maintain their 
relative priority to each other as all interest is being managed 
together to the same ABBO. Conversely, only Post-Only Orders are 
subject to the POP Process and are managed to the PBBO, therefore it is 
necessary to timestamp this interest as there may be non-routable 
interest that supersedes Post-Only interest as a result of the Post-
Only designation which requires that Post-Only Orders not remove 
liquidity from the Book.\17\
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    \17\ See supra note 11.
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2. Statutory Basis
    The Exchange believes that its proposed rule changes are consistent 
with Section 6(b) of the Act \18\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \19\ 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 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

[[Page 24846]]

general, to protect investors and the public interest.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes its proposal removes impediments to and 
perfects the mechanisms of a free and open market and a national market 
system as the removal of the proposed rule text does not have a 
substantive effect on the relative priority of non-routable orders 
being managed under the Exchange's Managed Interest Process for Non-
Routable Orders. Non-routable orders will retain their priority 
relative to other orders subject to the Managed Interest Process for 
Non-Routable Orders based upon the time each order is received by the 
Exchange.
    The Exchange's proposal to remove unnecessary rule text from its 
rules promotes just and equitable principles of trade and 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, by adding clarity and precision to the Exchange's 
rules. The Exchange believes it is the interest of investors and the 
public to accurately describe the behavior of the Exchange's System in 
its rules.

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 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 intra-market competition as the rules of the 
Exchange apply equally to all Members.\20\ The proposed rule change is 
not a competitive filing and is intended to enhance the protection of 
investors and the public by clarifying the operation of the Exchange's 
System.
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    \20\ 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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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 \21\ and Rule 19b-4(f)(6) \22\ 
thereunder.
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 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-2019-19 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-2019-19. 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-2019-19 and should be submitted on 
or before June 19, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-11101 Filed 5-28-19; 8:45 am]
 BILLING CODE 8011-01-P


