[Federal Register Volume 86, Number 52 (Friday, March 19, 2021)]
[Notices]
[Pages 14974-14980]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05674]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91323; File No. SR-PEARL-2021-07]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change to Adopt a 
Minimum Execution Quantity Instruction for Orders

March 15, 2021.
    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 March 1, 2021, MIAX PEARL, LLC (``MIAX PEARL'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
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 proposed rule change to amend Exchange 
Rule 2614, Orders and Order Instructions, to adopt the Minimum 
Execution Quantity instruction.
    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.

[[Page 14975]]

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 Exchange Rule 
2614, Orders and Order Instructions, to adopt the Minimum Execution 
Quantity (``MEQ'') instruction that would be available to orders in 
equity securities traded on the Exchange's equity trading platform 
(referred to herein as ``MIAX PEARL Equities''). An MEQ instruction 
would enable a User \3\ to specify a minimum share amount at which the 
order will execute. An order to buy (sell) with an MEQ instruction 
would not execute unless the volume of orders to sell (buy) meets or 
exceeds the order to buy (sell)'s designated minimum quantity 
condition. The proposed MEQ instruction is based on similar 
functionality offered at other exchanges.\4\
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    \3\ Exchange Rule 1901 defines the term ``User'' as ``any Member 
or Sponsored Participant who is authorized to obtain access to the 
System pursuant to Exchange Rule 2602.''
    \4\ See, e.g., Cboe BYX Exchange, Inc. (``BYX'') and Cboe BZX 
Exchange, Inc. Rules 11.9(c)(5), Cboe EDGA Exchange, Inc. (``EDGA'') 
and Cboe EDGX Exchange, Inc. (``EDGX'', collectively with BYX, BZX, 
and EDGA, the ``Cboe Equity Exchanges'') Rules 11.6(h), New York 
Stock Exchange LLC (``NYSE'') Rule 7.31(i)(3), NYSE Arca, Inc. 
(``NYSE Arca'') Rule 7.31-E(i)(3), NYSE American LLC (``NYSE 
American'', collectively with NYSE and NYSE Arca, the ``NYSE 
Exchanges'') Rule 7.31E(i)(3), Investors Exchange, Inc. (``IEX'') 
Rule 11.190(h)(11), The NASDAQ Stock Market LLC (``NASDAQ'') Rule 
4703(e), and MEMX LLC (``MEMX'') Rule 11.6(f).
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    The Exchange understands that some market participants avoid 
sending large orders to MIAX PEARL Equities out of concern that such 
orders may interact with small orders entered by professional traders, 
possibly adversely impacting the execution of their larger order. 
Institutional orders are often much larger in size than the average 
order in the marketplace. To facilitate the liquidation or acquisition 
of a large position, market participants tend to submit multiple orders 
into the market that may only represent a fraction of the overall 
institutional position to be executed. Various strategies used by 
institutional market participants to execute large orders are intended 
to limit price movement of the security at issue. Executing in small 
sizes may impact the market for that security such that the additional 
orders the market participant has yet to enter into the market may be 
more costly to execute. If an institution is able to execute in larger 
sizes, the contra-party to the execution is less likely to be a 
participant that reacts to short term changes in the stock price, and 
as such, the price impact to the stock may be less acute when larger 
individual executions are obtained.\5\ As a result, these orders are 
often executed away from the Exchange in dark pools or other exchanges 
that offer the same functionality as proposed herein,\6\ or via broker-
dealer internalization.
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    \5\ The Commission has long recognized this concern: ``[a]nother 
type of implicit transaction cost reflected in the price of a 
security is short-term price volatility caused by temporary 
imbalances in trading interest. For example, a significant implicit 
cost for large investors (who often represent the consolidated 
investments of many individuals) is the price impact that their 
large trades can have on the market. Indeed, disclosure of these 
large orders can reduce the likelihood of their being filled.'' See 
Securities Exchange Act Release No. 42450 (February 23, 2000), 65 FR 
10577, 10581 (February 28, 2000) (SR-NYSE-99-48).
    \6\ See supra note 4.
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    To attract larger orders, the Exchange proposes to add new optional 
functionality in the form of the MEQ instruction. The proposed MEQ 
instruction would be described under new paragraph (c)(7) of Exchange 
Rule 2614 and described as an instruction a User may attach to a non-
displayed order requiring the System to execute the order only to the 
extent that a minimum quantity can be satisfied. Accordingly, the 
Exchange also proposes to amend Exchange Rule 2614(a) to specify that 
the MEQ instruction may be attached to a non-displayed Limit Order,\7\ 
a Market Order, and a Midpoint Peg Order.
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    \7\ Unlike the Cboe Equity Exchanges and MEMX, the Exchange will 
not permit displayed Limit Orders with a time-in-force of Immediate-
or-Cancel (``IOC'') to include a minimum quantity condition. See, 
e.g., EDGX Rule 11.8(b)(3). See also MEMX Rule 11.8(b)(2).
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Operation Upon Entry
    The proposed MEQ instruction would operate differently upon entry 
than when resting on the MIAX PEARL Equities Book.\8\ Proposed Exchange 
Rule 2614(c)(7)(A) would describe the operation of the MEQ instruction 
upon entry and provide that an order with an MEQ will execute upon 
entry against individual orders resting on the MIAX PEARL Equities Book 
that each satisfy the order's minimum quantity condition. Subparagraph 
(c)(7)(A)(i) to Exchange Rule 2614 would provide that a User may 
alternatively specify that the incoming order's minimum quantity 
condition need not be satisfied by each individual resting order and 
that the order's minimum quantity condition be satisfied by one or 
multiple orders resting on the MIAX PEARL Equities Book that in the 
aggregate satisfy the order's minimum quantity condition.\9\
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    \8\ Exchange Rule 1901 defines the term ``MIAX PEARL Equities 
Book'' as ``the electronic book of orders in equity securities 
maintained by the System.''
    \9\ The Exchange notes that this functionality is similar to 
that of the Cboe Equity Exchanges with the exception of the proposed 
default behavior. The CBOE Equity Exchanges default orders with a 
minimum execution quantity to execute against multiple aggregated 
contra-side orders upon entry. See, e.g., EDGX Rule 11.6(h). The 
NYSE Exchanges and NASDAQ provide both alternatives but do not 
provide a default. See, e.g., NYSE Rule 7.31(i)(3) and NASDAQ Rule 
4703(e). The Exchange also notes that MEMX only allows orders with a 
minimum execution quantity to execute against a single order that 
satisfies the orders minimum quantity condition upon entry and does 
not provide for multiple contra-side orders to be aggregated to meet 
the order's minimum quantity condition. See MEMX Rule 11.6(f).
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    Subparagraph (c)(7)(A) to Exchange Rule 2614 would also provide 
that if there are orders that satisfy the minimum quantity condition, 
but there are also orders that do not satisfy the minimum quantity 
condition, the order with the MEQ instruction will execute against 
orders resting on the MIAX PEARL Equities Book in accordance with Rule 
2616, Priority of Orders, until it reaches an order that does not 
satisfy the minimum quantity condition, and then the remainder of the 
order with an MEQ instruction will be posted to the MIAX PEARL Equities 
Book or cancelled in accordance with the terms of the order.\10\
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    \10\ This behavior is identical to that of the Cboe Equity 
Exchanges and MEMX. See, e.g., EDGX Rule 11.6(h) and MEMX Rule 
11.6(f).
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    The following example illustrates when a User elects for an order 
with an MEQ instruction to execute upon entry against any number of 
smaller contra-side orders that, in aggregate, meet the order's minimum 
quantity condition. Assume there are two orders to sell at $10.00 
resting on the MIAX PEARL Equities Book--the first for 300 shares and a 
second for 400 shares, with the 300 share order having time priority 
ahead of the 400 share order. If a User entered an order with an MEQ 
instruction to buy 700 shares at $10.00 with a minimum quantity of 500 
shares,

[[Page 14976]]

and the order was marketable against the two resting sell orders for 
300 and 400 shares, the System would aggregate both sell orders for 
purposes of meeting the minimum quantity, thus resulting in executions 
of 300 shares and then 400 shares respectively.
    Following from the above example, assume, however, that the User 
did not make an affirmative election that their order with an MEQ 
instruction execute against multiple contra-side orders that, in 
aggregate, meet the order's minimum quantity condition, such that the 
order with an MEQ instruction will execute against only individual 
contra-side orders upon entry that each satisfy the minimum quantity 
condition. Assume further that the User elected a minimum quantity 
condition at 400 shares. The order with an MEQ instruction would not 
execute against the two sell orders because the 300 share order with 
time priority at the top of the MIAX PEARL Equities Book is less than 
the incoming order's 400 share minimum quantity condition. The order 
with an MEQ instruction would then be cancelled or posted to the MIAX 
PEARL Equities Book, non-displayed, when encountering an order with 
time priority that is of insufficient size to satisfy its minimum 
quantity condition.
Operation When Resting on the MIAX PEARL Equities Book
    Proposed Exchange Rule 2614(c)(7)(B) would describe the operation 
of orders with an MEQ instruction when resting on the MIAX PEARL 
Equities Book. Specifically, proposed Exchange Rule 2614(c)(7)(B) would 
provide that where there is insufficient size to satisfy an incoming 
order's minimum quantity condition, that incoming order with an MEQ 
instruction and a time-in-force of Regular Hours Only (``RHO'') \11\ 
will not trade and will be posted on the MIAX PEARL Equities Book. 
Subparagraph (c)(7)(B)(i) of Exchange Rule 2614 would provide that when 
posted on the MIAX PEARL Equities Book, the order may only execute 
against individual incoming orders with a size that satisfies the 
minimum quantity condition.\12\
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    \11\ Exchange Rule 2614(b)(2).
    \12\ This behavior is identical to that of the Cboe Equity 
Exchanges and MEMX. See, e.g., EDGX Rule 11.6(h) and MEMX Rule 
11.6(f).
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    Subparagraph (c)(7)(B)(i)(1) of Exchange Rule 2614 would provide 
that an order with an MEQ instruction cedes execution priority when it 
would lock or cross an order against which it would otherwise execute 
if it were not for the minimum quantity condition.\13\ The following 
example illustrates this behavior. Assume the NBBO is $10.00 by $10.10 
and no orders are resting on the MIAX PEARL Equities Book. A non-
displayed order to sell 100 shares at $10.10 is entered and posted to 
the MIAX PEARL Equities Book (``Order A''). A non-displayed order to 
buy 700 shares at $10.10 with a minimum quantity condition to execute 
against a single order of 500 shares is then entered and posted to the 
MIAX PEARL Equities Book (``Order B''). Order B does not execute 
against Order A because Order A does not satisfy Order B's minimum 
quantity condition of 500 shares. As a result, Order A is posted to the 
MIAX PEARL Equities Book at $10.10, creating an internally locked book. 
An order to buy 100 shares at $10.10 is then entered and executes 
against Order A at $10.10 for 100 shares ahead of Order B because Order 
B's minimum quantity condition of 500 shares requires it now execute 
against a single incoming order that is of sufficient size to satisfy 
its minimum quantity condition.
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    \13\ Id.
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    Subparagraph (c)(7)(B)(i)(2) of Exchange Rule 2614 would provide 
that if a resting non-displayed sell (buy) order did not meet the 
minimum quantity condition of a same-priced resting order to buy (sell) 
with an MEQ instruction, a subsequently arriving sell (buy) order that 
meets the minimum quantity condition will trade ahead of such resting 
non-displayed sell (buy) order at that price. The following example 
illustrates this behavior. Assume the NBBO is $10.00 by $10.10 and no 
orders are resting on the MIAX PEARL Equities Book. A non-displayed 
order to buy 700 shares at $10.10 with a minimum quantity condition to 
execute against a single order of 500 shares is entered and posted to 
the MIAX PEARL Equities Book (``Order A''). A non-displayed order to 
sell 100 shares at $10.10 is then entered and posted to the MIAX PEARL 
Equities Book (``Order B''). Order B does not execute against Order A 
because Order B does not satisfy Order A's single minimum quantity 
condition of 500 shares. As a result, Order B is posted to the MIAX 
PEARL Equities Book at $10.10, creating an internally locked book. An 
order to sell 500 shares at $10.10 is then entered and executes against 
Order A at $10.10 for 500 shares because the incoming order is of 
sufficient size to satisfy Order A's minimum quantity condition of 500 
shares.
    To reduce the occurrences of an internally crossed non-displayed 
market, the Exchange proposes to re-price incoming orders with an MEQ 
instruction where that order would be posted at a price that may cross 
a displayed order posted on the MIAX PEARL Equities Book. Subparagraph 
(c)(7)(B)(ii) of Exchange Rule 2614 would provide that where there is 
insufficient size to satisfy the minimum quantity condition of an 
incoming order to buy (sell) and that incoming order, if posted at its 
limit price, would cross a displayed order to sell (buy) resting on the 
MIAX PEARL Equities Book, the order to buy (sell) with the Minimum 
Execution Quantity instruction will have a working price equal to the 
price of the displayed order to sell (buy).\14\ For example, an order 
to buy at $11.00 with a minimum quantity condition of 500 shares is 
entered and there is a displayed order resting on the MIAX PEARL 
Equities Book to sell 200 shares at $10.99. The resting order to sell 
does not contain sufficient size to satisfy the incoming order's 
minimum quantity condition of 500 shares. The price of the incoming buy 
order, if posted to the MIAX PEARL Equities Book, would cross the price 
of the resting sell order. In such case, to avoid an internally crossed 
book, the System will re-price the incoming buy order to $10.99, the 
locking price.
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    \14\ The Exchange notes that this behavior proposed by the 
Exchange was previously adopted by the Cboe Exchanges. See e.g., 
Securities Exchange Act Release No. 81457 (August 22, 2017), 82 FR 
40812 (August 28, 2017) (SR-BatsEDGX-2017-34). The Cboe Equity 
Exchanges subsequently amended this functionality to cancel an order 
with a minimum quantity condition where, if posted, it would lock or 
cross the displayed price of an order on their book. See, e.g., 
Securities Exchange Act Release No. 82943 (March 23, 2018), 83 FR 
13574 (March 29, 2018) (SR-CboeEDGX-2018-008).
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    As discussed above, proposed subparagraph (c)(7)(B)(ii) of Exchange 
Rule 2614 seeks to prevent incoming orders with an MEQ instruction from 
being posted to the MIAX PEARL Equities Book at a price that crosses 
resting displayed contra-side orders by re-pricing the order with an 
MEQ instruction to the locking price. However, once resting on the MIAX 
PEARL Equities Book, it is possible that an incoming order may be of 
insufficient size to satisfy the resting order's minimum quantity 
condition, and therefore, post on the MIAX PEARL Equities Book at a 
price that crosses the resting order with a minimum quantity condition, 
resulting in an internally crossed non-displayed book. To address 
intra-market priority in such a scenario, the Exchange proposes to 
adopt subparagraph (c)(7)(B)(iii) of Exchange Rule 2614 to describe 
when an order with an MEQ instruction would not be eligible to trade to 
prevent executions from occurring that may be inconsistent

[[Page 14977]]

with intra-market price priority or would result in a non-displayed 
order trading ahead of a same-priced, same-side displayed order. The 
Exchange would not permit an order with an MEQ instruction that crosses 
other displayed or non-displayed orders on the MIAX PEARL Equities Book 
to trade at prices that are worse than the price of such contra-side 
orders. The Exchange would also not permit a resting order with an MEQ 
instruction to trade at a price equal to a contra-side displayed order.
    Specifically, proposed Exchange Rule 2614(c)(7)(B)(iii) would 
provide that an order to buy (sell) with an MEQ instruction that is 
posted to the MIAX PEARL Equities Book will not be eligible to trade: 
(1) At a price equal to or above (below) any sell (buy) displayed 
orders that have a ranked price equal to or below (above) the price of 
such order with a Minimum Execution Quantity instruction; or (2) at a 
price above (below) any sell (buy) non-displayed order that has a 
ranked price below (above) the price of such order with a Minimum 
Execution Quantity instruction.\15\
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    \15\ This behavior is identical to that of the Cboe Equity 
Exchanges, MEMX, and the NYSE Exchanges. See, e.g., EDGX Rule 
11.6(h), MEMX Rule 11.6(f), and NYSE Rule 7.31(i)(3)(C).
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    Subparagraph (c)(7)(B)(iv) of Exchange Rule 2614 would provide that 
an order with an MEQ instruction that crosses an order on the MIAX 
PEARL Equities Book may execute at a price less aggressive than its 
ranked price against an incoming order so long as such execution is 
consistent with the above restrictions. The Exchange notes that this 
behavior is consistent with that of other exchanges.\16\
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    \16\ This behavior is identical to that of the Cboe Equity 
Exchanges and MEMX. See, e.g., EDGX Rule 11.6(h) and MEMX Rule 
11.6(f).
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    The following examples describe the proposed operation of an order 
with a Minimum Execution Quantity during an internally crossed market. 
This first example addresses intra-market priority amongst an order 
with an MEQ instruction and other non-displayed orders in an internally 
crossed market as well as when an execution may occur at prices less 
aggressive than the resting order's ranked price. Assume the NBBO is 
$10.10 by $10.16. A Midpoint Peg Order to buy with a minimum quantity 
condition to execute against a single order of 100 shares is resting on 
the MIAX PEARL Equities Book at $10.13, the midpoint of the NBBO 
(``Order A''). A non-displayed order to sell 50 shares at $10.12 is 
then entered (``Order B''). Because Order A's minimum quantity 
condition cannot be met, Order B will not trade with Order A and will 
be posted and ranked on the MIAX PEARL Equities Book at $10.12, its 
limit price. The Exchange now has a non-displayed buy order crossing a 
non-displayed sell order on the MIAX PEARL Equities Book. Then a non-
displayed order to sell 25 shares at $10.11 is entered (``Order C''). 
Like was the case for Order B, Order C does not satisfy Order A's 
minimum quantity condition and Order C is posted and ranked on the MIAX 
PEARL Equities Book at $10.11, its limit price. The Exchange now has a 
non-displayed buy order crossing both non-displayed sell orders on the 
MIAX PEARL Equities Book. If the Exchange then receives an order to 
sell for 100 shares at $10.11 (``Order D''),\17\ although Order D would 
be marketable against Order A at $10.13, it would not trade at $10.13 
because it is above the price of all resting sell orders. Order D will 
instead execute against Order A at $10.11, receiving price improvement 
relative to the midpoint of the NBBO.
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    \17\ The Exchange understands that on the NYSE Exchanges, Order 
D will be posted to the book at $10.11 and not execute against Order 
A at $10.13.
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    This second example addresses intra-market priority amongst 
displayed orders, non-displayed orders with an MEQ instruction and 
other non-displayed orders. The Exchange notes that the below behavior 
is not unique to an internally crossed market as the Exchange's 
priority rule, 2616(a), currently prohibits non-displayed orders, which 
would include non-displayed orders with an MEQ instruction, from 
trading ahead of same-priced, same-side displayed orders. Assume the 
NBBO is $10.00 by $10.04. A non-displayed order to buy 500 shares at 
$10.00 is resting on the MIAX PEARL Equities Book (``Order A''). A 
displayed order to buy 100 shares at $10.00 is then entered and posted 
to the MIAX PEARL Equities Book (``Order B''). The Exchange receives a 
non-displayed order to sell 600 shares at $10.00 with a minimum 
quantity condition to execute against a single order of 500 shares 
(``Order C''). Although Order A satisfies Order C's minimum quantity 
condition and has time priority ahead of Order B, no execution occurs 
because Order B is a displayed order and has execution priority over 
Order A, a non-displayed order. Order C does not execute against Order 
B because Order B does not satisfy Order C's minimum quantity 
condition. Order C is then posted to the MIAX PEARL Equities Book at 
$10.00, non-displayed.
Partial Executions
    Proposed Exchange Rule 2614(c)(7)(C) would describe the handling of 
orders with an MEQ instruction that are partially executed either upon 
arrival or when resting on the MIAX PEARL Equities Book. Specifically, 
subparagraph (c)(7)(C) of Exchange Rule 2614 would provide that an 
order with an MEQ instruction may be partially executed so long as the 
execution size of the individual order or aggregate size of multiple 
orders, as applicable, is equal to or exceeds the minimum quantity 
condition provided in the instruction. Subparagraph (c)(7)(C)(i) of 
Exchange Rule 2614 would provide that any shares remaining after a 
partial execution will continue to be executed at a size that is equal 
to or exceeds the quantity provided in the instruction. Subparagraph 
(c)(7)(C)(ii) of Exchange Rule 2614 would provide that where the number 
of shares remaining are less than the minimum quantity condition 
provided in the instruction, the minimum quantity condition shall be 
equal to the number of shares remaining.\18\
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    \18\ The Exchange notes that this behavior is identical to that 
of the Cboe Equity Exchanges. See, e.g., EDGX Rule 11.6(h) (stating 
that ``[w]here the number of shares remaining after a partial 
execution are less than the quantity provided in the instruction, 
the Minimum Execution Quantity shall be equal to the number of 
shares remaining''). See also IEX Rule 11.190(h)(11)(G)(ii)(b).
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Routing
    An order with an MEQ instruction would be non-routable. Proposed 
Exchange Rule 2614(c)(7)(D) would provide that orders that include an 
MEQ instruction would not be eligible to be routed to an away Trading 
Center in accordance with Exchange Rule 2617(b).\19\
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    \19\ This behavior is identical to that of the Cboe Equity 
Exchanges and MEMX. See, e.g., EDGX Rule 11.6(h) and MEMX Rule 
11.6(f).
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Operation of Order With an MEQ Instruction Pre-Open and During the 
Opening and Re-Opening Processes
    Currently, Exchange Rule 2600(a) provides that the Exchange will 
not accept orders designated as Post Only with a time-in-force of RHO, 
ISOs, and all orders with a time-in-force of IOC prior to 9:30 a.m. 
Eastern Time. Likewise, Exchange Rule 2600(a) would be amended to also 
provide that orders with an MEQ instruction will not be accepted prior 
to 9:30 a.m. Eastern Time.\20\
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    \20\ The Exchange notes that this is similar to the Cboe Equity 
Exchanges. See, e.g., EDGX Rule 11.1(a)(1).
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    Orders with an MEQ instruction will also not be eligible to 
participate in either the opening or re-opening process described under 
Exchange Rule 2615. Specifically, the Exchange proposes to

[[Page 14978]]

amend subparagraph (a)(1) of Exchange Rule 2615 to provide that orders 
with an MEQ instruction are not eligible to participate in the opening 
process and subparagraph (e) of Exchange Rule 2615 would provide that 
orders with an MEQ instruction that are to participate in the re-
opening process will be cancelled or rejected.\21\
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    \21\ The Exchange notes that this is similar to the Cboe Equity 
Exchanges. See, e.g., EDGX Rule 11.7(a)(2) and (e)(1).
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Implementation
    Due to the technological changes associated with this proposed 
change, the Exchange will issue a trading alert publicly announcing the 
implementation date of this proposed rule change. The Exchange 
anticipates that the implementation date will be in either the second 
or third quarter of 2021.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\22\ in general, and furthers the objectives of Section 
6(b)(5),\23\ in particular, because 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 mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The proposed rule change 
would remove impediments to and promote just and equitable principles 
of trade because it would provide market participants, including 
institutional firms who ultimately represent individual retail 
investors in many cases, with optional functionality that would provide 
them with better control over their orders. Therefore, the proposal 
would also provide them with greater potential to improve the quality 
of their order executions.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
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    As discussed above, the functionality proposed herein would enable 
Users to avoid transacting with smaller orders that they believe 
ultimately increases the cost of the transaction. Because the Exchange 
does not have this functionality, the Exchange believes that market 
participants, such as large institutions that transact a large number 
of orders on behalf of retail investors, have avoided sending large 
orders to the Exchange to avoid potentially more expensive 
transactions.\24\ In this regard, the Exchange notes that the proposed 
new optional MEQ instruction may improve the Exchange's market by 
attracting more order flow. Such new order flow will further enhance 
the depth and liquidity on the Exchange, which supports just and 
equitable principles of trade. Furthermore, the proposed MEQ 
instruction is consistent with providing market participants with 
greater control over the nature of their executions so that they may 
achieve their trading goals and improve the quality of their 
executions.
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    \24\ As noted, the proposal is designed to attract liquidity to 
the Exchange by allowing market participants to designate a minimum 
size of a contra-side order to interact with, thus providing them 
with functionality available to them on dark markets.
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    Furthermore, the Exchange believes its proposal promotes just and 
equitable principles of trade because the proposed operation of the MEQ 
instruction is based on similar functionality at other exchanges.\25\ 
As described further below, while the operation varies in certain ways 
from that of other exchanges, no aspect of the proposed MEQ 
instructions operation is unique to the Exchange and is already in 
place at other exchanges that offer minimum trade size functionality.
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    \25\ See supra note 4.
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    The proposal allows Users to designate the minimum individual 
execution size upon entry or alternatively designate a minimum 
acceptable quantity on an order that may aggregate multiple executions 
to meet the minimum quantity requirement. The Exchange notes this 
proposed default behavior is the only area where the proposal differs 
from that of other exchanges. Most other equity exchanges provide their 
members the option for their order with a minimum execution quantity 
instruction to execute upon entry against a single order or multiple 
orders in the aggregate. The CBOE Equity Exchanges default orders with 
a minimum execution quantity to execute against multiple aggregated 
orders upon entry. NASDAQ, the NYSE Exchanges, and IEX do not provide a 
default and require that their members make an election upon entry. 
MEMX is the only exchange that does not provide both options and only 
allows orders with a minimum execution quantity to execute against a 
single contra-side order upon entry. The Exchange believes this 
difference is immaterial as, like most other exchanges, both options 
will continue to be available to Users. The Exchange believes its 
proposal to default orders with an MEQ instruction to execute against 
individual orders that each meet minimum quantity condition upon entry 
promotes just and equitable principles of trade because it based on 
discussions with market participants and would enable Users to avoid 
interacting with small orders entered by professional traders without 
making an affirmative election to do so, possibly adversely impacting 
the execution of their larger order. Once posted to the MIAX PEARL 
Equities Book, the MEQ instruction operates like that of other 
exchanges where the order would only be eligible to execute against a 
single contra-side order.\26\
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    \26\ See EDGX Rule 11.6(h) and MEMX Rule 11.6(f).
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    The Exchange also believes that re-pricing incoming orders with an 
MEQ instruction where that order may cross a displayed order posted on 
the MIAX PEARL Equities Book promotes just and equitable principles of 
trade because it enables the Exchange to avoid an internally crossed 
book. The proposed re-pricing is also similar to how the Exchange 
currently reprices non-displayed orders that cross the Protected 
Quotation of an external market.\27\ The Exchange notes that this 
behavior was previously adopted by the Cboe Exchanges.\28\ In addition, 
both IEX and NASDAQ also re-price minimum quantity orders to avoid an 
internally crossed book. In certain circumstances, NASDAQ re-prices buy 
(sell) orders to one minimum price increment below (above) the lowest 
(highest) price of resting orders that do not satisfy the minimum 
quantity condition.\29\ IEX re-prices non-displayed orders, such as 
minimum quantity orders, that include a limit price more aggressive 
than the midpoint of the NBBO to the midpoint of the NBBO.\30\ 
Moreover, the proposed optional aggregation functionality for the MEQ 
instruction is substantially similar to that offered by NASDAQ and IEX, 
both of which have been approved by the Commission.\31\
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    \27\ See Exchange Rule 2614(g)(2).
    \28\ See, e.g., Securities Exchange Act Release No. 81457 
(August 22, 2017), 82 FR 40812 (August 28, 2017 (SR-BatsEDGX-2017-
34). The Cboe Equity Exchanges subsequently amended this 
functionality to cancel an order with a minimum quantity condition 
where, if posted, it would lock or cross the displayed price of an 
order on their book. See, e.g., Securities Exchange Act Release No. 
82943 (March 23, 2018), 83 FR 13574 (March 29, 2018) (SR-CboeEDGX-
2018-008).
    \29\ See NASDAQ Rule 4703(e). For example, NASDAQ Rule 4703(e) 
provides that if there was an order to buy at $11 with a minimum 
quantity condition of 500 shares, and there were resting orders on 
the NASDAQ Book to sell 200 shares at $10.99 and 300 shares at $11, 
the order would be repriced to $10.98 and ranked at that price.
    \30\ See IEX Rule 11.190(h)(2).
    \31\ See Securities Exchange Act Release No. 73959 (December 30, 
2014), 80 FR 582 (January 6, 2015) (order approving new optional 
functionality for Minimum Quantity Orders). See IEX Rule 
11.190(b)(11) and Supplementary Material .03 (defining Minimum 
Quantity Orders and MinExec with Cancel Remaining and MinExec with 
AON Remaining). See also Securities Exchange Act Release No. 78101 
(June 17, 2016), 81 FR 41141 (June 23, 2016) (order approving the 
IEX exchange application, which included IEX's Minimum Quantity 
Orders). The Exchange also notes that a letter was submitted in 
strong support of NASDAQ at the time they proposed similar changes 
to the operation of their Minimum Quantity order attribute under 
NASDAQ Rule 4703(e). See letter to the Commission from James J. 
Angel, Associate Professor of Finance, Georgetown University, dated 
November 26, 2014.

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[[Page 14979]]

    The proposed rule change also removes impediments to and perfects 
the mechanism of a free and open market and a national market system 
because it would ensure that there would not be an execution of a 
resting order with an MEQ instruction that either would be inconsistent 
with intra-market price priority or would result in a non-displayed 
order trading ahead of a same-side, same-priced displayed order. 
Specifically, the proposed rule change would protect displayed orders 
by preventing an order with an MEQ instruction from executing where it 
is locked by a contra-side displayed order. The proposed rule change 
also protects intra-market price priority by preventing a resting order 
with an MEQ instruction from executing where it is crossed by either a 
displayed or non-displayed order on the MIAX PEARL Equities Book. The 
Exchange also believes it is reasonable for: (i) An order with an MEQ 
instruction to cede execution priority when it would lock or cross an 
order against which it would otherwise execute if it were not for the 
minimum quantity condition; and (ii) a resting non-displayed order to 
cede execution priority to a subsequently arriving same-side order 
where that order is of sufficient size to satisfy a resting contra-side 
order's minimum quantity condition because doing so in both cases 
facilitates executions in accordance with the terms and conditions of 
each order. This portion of the proposed rule change is also 
substantially similar to minimum execution functionality on the Cboe 
Equity Exchanges and MEMX.\32\
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    \32\ See supra note 4.
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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. In fact, the Exchange 
believes that the proposal may have a positive effect on competition 
because it will enable the Exchange to offer functionality 
substantially similar to that offered by the Cboe Equity Exchanges, the 
NYSE Exchanges, NASDAQ, MEMX, and IEX.\33\ As noted above, the Exchange 
believes its lack of this functionality has put it at a competitive 
disadvantage as market participants, such as large institutions that 
transact a large number of orders on behalf of retail investors, have 
avoided sending large orders to the Exchange to avoid potentially more 
expensive transactions. This proposal is designed to allow the Exchange 
to directly compete with other exchanges that offer similar minimum 
quantity functionality. The proposal would therefore promote 
competition because it is designed to attract liquidity to the Exchange 
by allowing market participants to designate a minimum size of a 
contra-side interest to interact with, thus providing them with 
functionality available to them on dark markets and other exchanges.
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    \33\ Id.
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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 \34\ and Rule 19b-4(f)(6) \35\ 
thereunder.
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    \34\ 15 U.S.C. 78s(b)(3)(A).
    \35\ 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-2021-07 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-2021-07. 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-2021-07, and should be submitted 
on or before April 9, 2021.


[[Page 14980]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05674 Filed 3-18-21; 8:45 am]
BILLING CODE 8011-01-P


