[Federal Register Volume 86, Number 149 (Friday, August 6, 2021)]
[Notices]
[Pages 43279-43283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-16789]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92545; File No. SR-PEARL-2021-35]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
of Proposed Rule Change To Amend Exchange Rule 2616, Priority of Orders

August 2, 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 July 20, 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 and II 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 2616, 
Priority of Orders, to provide that an order will receive a new 
timestamp when its position is modified via a Cancel/Replace message 
during a Short Sale Period.\3\
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    \3\ Exchange Rule 2614(g)(3)(A) defines a Short Sale Period as 
the time when ``a short sale price test restriction under Rule 201 
of Regulation SHO'' is in effect. 17 CFR 242.201.
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    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 purpose of the proposed rule change is to amend Exchange Rule 
2616, Priority of Orders, to provide that an order will receive a new 
timestamp when its position is modified via a Cancel/Replace message 
during a Short Sale Period. The proposed rule change applies to orders 
in equity securities traded on the Exchange's equity trading platform 
(referred to herein as ``MIAX Pearl Equities'').
    Exchange Rule 2614(e)(3) provides that only the price, sell long, 
sell short, or short exempt indicator, Max Floor of an order with a 
Reserve Quantity,\4\ and size terms of the order may be changed by a 
Cancel/Replace Message. If a User desires to change any other terms of 
an existing order the existing order must be

[[Page 43280]]

cancelled and a new order must be entered. An order receives a new 
timestamp when that order receives a new price, its size is increased, 
or is cancelled in full and replaced by a new order. In addition, an 
order also receives a new timestamp when it is repriced pursuant to 
Exchange Rule 2614(g).\5\ For example, an order may be repriced 
pursuant to the Exchange's Display Price Sliding Process if it would be 
displayed at a price that would lock or cross the Protected Best Bid or 
Offer (``PBBO'') of an away Trading Center.\6\ In such case, that order 
would receive a new timestamp.
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    \4\ See Exchange Rule 2614(c)(8).
    \5\ See, e.g., Exchange Rule 2614(g) (``Repricing Processes to 
Comply with Regulatory Requirements'').
    \6\ See Exchange Rule 2614(g)(1) (``Display Price Sliding 
Process'').
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    Exchange Rule 2616(a)(5) currently provides that in the event an 
order has been cancelled or replaced in accordance with Exchange Rule 
2614(e), such order only retains its timestamp if such modification 
involves a decrease in the size of the order, a change to the Max Floor 
of an order with a Reserve Quantity, or a change in position from (A) 
sell to sell short; (B) sell to sell short exempt; (C) sell short to 
sell; (D) sell short to sell short exempt; (E) sell short exempt to 
sell; and (F) sell short exempt to sell short. Any other modification 
to an order, including an increase in the size of the order and/or 
price change, will result in such order losing time priority as 
compared to other orders in the MIAX Pearl Equities Book \7\ and the 
timestamp for such order being revised to reflect the time of the 
modification.
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    \7\ Exchange Rule 1901 defines the term ``MIAX Pearl Equities 
Book'' as ``the electronic book of orders in equity securities 
maintained by the System.''
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    The Exchange now proposes to provide that an order will also 
receive a new timestamp in one additional scenario where the order may 
not receive a new price. As proposed, an order would also receive a new 
timestamp when its position is changed via a Cancel/Replace message 
during a Short Sale Period. Specifically, the Exchange proposes to 
amend Exchange Rule 2616(a)(5) to provide that a change in position via 
a Cancel/Replace message from (A) sell to sell short; (B) sell to sell 
short exempt; (C) sell short to sell; (D) sell short to sell short 
exempt; (E) sell short exempt to sell; and (F) sell short exempt to 
sell short during a Short Sale Period will result in a change to the 
order's timestamp. Such modification to an order during a Short Sale 
Period will result in such order losing time priority as compared to 
other orders in the MIAX Pearl Equities Book and the timestamp for such 
order being revised to reflect the time of the modification. The 
Exchange does not propose to change an order's timestamp where a 
position change is made via a Cancel/Replace message when a Short Sale 
Period is not in effect.
    The need for proposed rule change became apparent as a result of 
technology changes related to the Exchange's recent implementation of 
the Reserve Quantity and Minimum Execution Quantity \8\ order 
instructions.\9\ As a result of the above technology changes and to 
ensure the ongoing resiliency of the System,\10\ the reevaluation of an 
order for execution as a result of a change to the order's position via 
a Cancel/Replace message during a Short Sale Period will result in that 
order receiving a new timestamp, including where the order's price 
remains unchanged.
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    \8\ See Exchange Rule 2614(c)(7).
    \9\ See MIAX Pearl Equities--Reminder: Announces Further 
Expansion of its Equity Trading Platform with the Launch of the 
Minimum Execution Quantity and Reserve Quantity Order Instructions; 
Both Available July 1st 2021, available at https://www.miaxoptions.com/alerts/2021/06/15/miax-pearl-equities-reminder-announces-further-expansion-its-equity-trading (June 15, 2021).
    \10\ 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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    The Exchange notes that an order will always receive a new 
timestamp where the order is re-priced, including where that order is 
re-priced pursuant to the Exchange's Short Sale Price Sliding Process 
due to a change in position via a Cancel/Replace message.\11\ However, 
pursuant to the proposed rule change, a position change via a Cancel/
Replace message during a Short Sale Period would now always result in 
the order receiving a new timestamp, regardless of whether the re-
evaluation of the order results in the order being re-priced.
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    \11\ See Exchange Rule 2614(g)(3) for a description of the 
Exchange's Short Sale Price Sliding Process.
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    The proposed rule change reflects a necessary technology change 
that would ensure continued System resiliency and stability. The 
Exchange notes that the proposed rule change is designed to address a 
discrete and potentially limited scenario that a Short Sale Period must 
be in effect when the position change is made via a Cancel/Replace 
message. If a Short Sale Period is not in effect, an order would retain 
its timestamp when its position is changed via a Cancel/Replace 
message. The proposed rule change is no different than where an order 
may receive a new timestamp when it is not re-priced, such as when an 
order's size is increased via a Cancel/Replace message or an order is 
cancelled in full and replaced with a new order. In both of these 
cases, the order would be provided a new timestamp and experience a 
loss in priority. The same would be true under the proposed rule change 
where an order would receive a new timestamp where its position is 
changed via a Cancel/Replace message during a Short Sale Period.
* * * * *
    Lastly, the Exchange proposes to make two clarifying changes to 
Exchange Rules 2614(e)(3) and 2616(a)(5). First, the Exchange proposes 
to add the word ``Cancel'' before the word ``Replace'' in Exchange Rule 
2614(e)(3). This change is to use consistent terminology when referring 
to Cancel/Replace messages in the Exchange's rules. Second, the 
Exchange proposes to clarify within Exchange Rule 2616(a)(5) that an 
order is being modified by the Cancel/Replace message. In part, 
Exchange Rule 2616(a)(5) states that ``[i]n the event an order has been 
cancelled or replaced in accordance with Exchange Rule 2614(e) above, . 
. .''. The Exchange proposes to replace the phrase ``cancelled or 
replaced'' in Exchange Rule 2616(a)(5) with ``modified via a Cancel/
Replace message.'' Doing so would clarify within Exchange Rule 
2616(a)(5) that the order is being modified, rather than cancelled and 
replaced with a new order. Neither of the above changes amend the 
meaning or operation of either rule. They are simply intended to 
clarify each rule and to ensure the use of consistent terminology 
across the Exchange's rulebook.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\12\ in general, and furthers the objectives of Section 
6(b)(5),\13\ 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change promotes just and equitable principles of 
trade because it is similar to other cases today where an order may 
lose priority when a modification is made via a Cancel/Replace message. 
For example,

[[Page 43281]]

increasing the size of an order will result in such order losing time 
priority as compared to other orders in the MIAX Pearl Equities Book 
and the timestamp for such order being revised to reflect the time of 
the modification.\14\ The System also re-evaluates the order for 
execution when an Equity Member \15\ increases the size of an order via 
a Cancel/Replace message. The same is true for a position change made 
pursuant to Exchange Rule 2614(e) during a Short Sale Period. For 
example, should an order's position be changed from long to short 
during a Short Sale Period, that order would become subject to the 
price restrictions of Regulation SHO \16\ and the System would evaluate 
whether the order may be executed or re-priced pursuant to the 
Exchange's Short Sale Price Sliding Process.\17\ Under the proposed 
rule change, this evaluation would result in the order receiving a new 
timestamp and loss in priority, even when that order is not re-priced. 
While the price of the order may not change, the position change during 
a Short Sale Period impacts whether the order is subject to the price 
restrictions of Regulation SHO and may or may not become eligible for 
execution. Therefore, like size change via a Cancel/Replace message may 
change the execution status of the order, the Exchange believes 
treating a position change made via a Cancel/Replace message in the 
same manner and updating the order's timestamp is reasonable and 
consistent with the Act because it also reflects a change in the 
execution status of the order.
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    \14\ See Exchange Rule 2616(a)(5).
    \15\ The term ``Equity Member'' is a Member authorized by the 
Exchange to transact business on MIAX Pearl Equities. See Exchange 
Rule 1901.
    \16\ 17 CFR 242.201(1)(i) [sic].
    \17\ Exchange Rule 2614(g)(3).
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    Further, as stated above, Exchange Rule 2614(e)(3) provides that 
only the price, sell long, sell short, or short exempt indicator, Max 
Floor of an order with a Reserve Quantity, and size terms of the order 
may be changed by a Cancel/Replace Message. If a User desires to change 
any other terms of an existing order the existing order must be 
cancelled and a new order must be entered. This includes, for example, 
changes to the minimum quantity condition of an order with a Minimum 
Execution Quantity instruction.\18\ In such case, the existing order 
must be cancelled and new order entered with the revised minimum 
execution quantity. Like a position change during a Short Sale Period, 
the new order would be provided a new timestamp and re-evaluated for 
execution based on the revised minimum execution quantity. Therefore, 
the proposed rule change promotes just and equitable principles of 
trade because it is similar to existing exchange functionality.
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    \18\ See Exchange Rule 2614(c)(7).
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    The proposed rule change promotes just and equitable principles of 
trade because it is consistent with the other exchanges' treatment of 
position changes and their impact on the order's priority. For example, 
Investors Exchange LLC (``IEX'') Rule 11.190(d)(4) does not allow for a 
position change via a Cancel/Replace message and requires that if a 
``[u]ser desires to modify an invalid field on an order, the existing 
order must be canceled and a new order must be entered.'' \19\ 
Therefore, on IEX, a market participant must enter a new order where it 
seeks to change that order's position at all times, not just during a 
Short Sale Period. This is broader than the Exchange's proposal which 
is limited to position changes during a Short Sale Period. On IEX, the 
new order would receive a new timestamp, resulting in a priority loss. 
In addition, The Nasdaq Stock Market, LLC (``Nasdaq'') Rule 4756(a)(3) 
provides that an order will be cancelled if the order's position is 
``redesignated as short during a Short Sale Period and the order is not 
priced at a Permitted Price or higher under Nasdaq Rule 4763(e).'' This 
would require the replacement of the original order with a new order 
and a new timestamp, resulting in a priority loss.\20\ Therefore, the 
Exchange's proposal is not novel and is similar to functionality 
provided for on other exchanges.
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    \19\ See IEX Rule 11.190(d)(4) (stating that ``Symbol, side, 
execution instruction, order type, and TIF are considered invalid 
fields. If a User attempts modify an invalid field by submitting a 
Replace Message, the order amendment will be rejected by the 
Exchange. If a User desires to modify an invalid field on an order, 
the existing order must be canceled and a new order must be 
entered'').
    \20\ See Nasdaq Rule 4756(a)(3).
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    Unlike where an order retains its timestamp when a modification 
involves a decrease in the size of the order or a change to the Max 
Floor of an order with a Reserve Quantity, a change in the order's 
position during a Short Sale Period triggers compliance with additional 
regulatory requirements. In such case, the Exchange must assess whether 
the order is priced or may be executed in accordance with Regulation 
SHO. For example, an order whose position is changed from long to short 
during a Short Sale Period may not be priced at or above the national 
best bid and may either need to be repriced pursuant to the Exchange's 
Short Sale Price Sliding Process or cancelled based on the Equity 
Member's instructions. Conversely, an order whose position is changed 
from short to long during a Short Sale Period would no longer be 
subject to the price restrictions of Regulation SHO and may now be 
eligible for execution or routing to an away market. An order marked 
short is not subject to the price restrictions of Regulation SHO when a 
Short Sale Period is not in effect. Therefore, allowing the order to 
retain its timestamp when a Short Sale Period is not in effect 
continues to promote just and equitable principles of trade because the 
execution status of the order remains unchanged.\21\
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    \21\ This is also consistent with other exchanges' rules. See, 
e.g., Members Exchange, Inc. Rule 11.9(a)(4) and Cboe EDGX Exchange, 
Inc. Rule 11.9(a)(4).
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    Notwithstanding the above, the proposed rule change also protects 
investors and the public interest because it does not change anything 
with regard to compliance with Regulation SHO, including Regulation 
SHO's order marking requirements and Equity Member's compliance with 
its applicable exceptions. Today, an Equity Member has the ability to 
modify their order's position via a Cancel/Replace message. The 
proposal does not change that. Today, Equity Members are required to 
mark their orders properly both upon entry and when modifying that 
order's position later via a Cancel/Replace message. This proposed rule 
change does not alter Equity Members obligations to continue to ensure 
that their orders are marked in accordance with the requirements of 
Regulation SHO and Exchange Rule 2623 \22\ at all times, including when 
changing the order's position via a Cancel/Replace message when a Short 
Sale Period is or is not in effect. As they are required to do today, 
Equity Members must also continue to ensure that their order complies 
with any applicable exemption from Regulation SHO that they seek to 
avail themselves of, not only at the time of entry, but also at the 
time they change the order's position

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via a Cancel/Replace message.\23\ Again, nothing in this proposal 
alters a Member's obligations under Regulation SHO. The Exchange notes 
that the proposed rule change removes impediments to and perfects the 
mechanism of a free and open market and a national market system 
because it is designed to address a discrete and potentially limited 
scenario of a Short Sale Period being in effect when the a position 
change is made via a Cancel/Replace message. If a Short Sale Period is 
not in effect, an order would retain its timestamp when its position is 
changed via a Cancel/Replace message. This proposed rule change is 
narrowly focused to address only where an order would lose priority 
where its position is changed via a Cancel/Replace message during a 
Short Sale Period.
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    \22\ Exchange Rule 26123 [sic] provides that ``[a]ll short sale 
orders shall be identified as ``short'' or ``short exempt'' when 
entered into the System. If marked ``short exempt,'' the Exchange 
shall execute, display and/or route a short sale order marked 
``short exempt'' without regard to any short sale price test 
restriction in effect during a Short Sale Period, as defined in 
Exchange Rule 2614(g)(3)(A). The Exchange relies on the marking of 
an order as ``short exempt'' when handling such order, and thus, it 
is the entering Member's responsibility, not the Exchange's 
responsibility, to comply with the requirements of Regulation SHO 
relating to marking of orders as ``short exempt.'' Exchange Rule 
2603 also requires that Equity Members input accurate information 
into the System.
    \23\ The Exchange will continue to surveil for compliance with 
Exchange Rules 2623 and 2603 as well as Regulation SHO.
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    The proposed rule change would also remove impediments to and 
promote just and equitable principles of trade because it reflects a 
necessary technology change that would ensure continued System 
resiliency and stability. As a national securities exchange, the 
Exchange is subject to Regulation Systems Compliance and Integrity 
(``Reg. SCI'').\24\ Reg. SCI Rule 1001(a) requires that the Exchange 
establish, maintain, and enforce written policies and procedures 
reasonably designed to ensure (among other things) that its Reg. SCI 
systems have levels of capacity adequate to maintain the Exchange's 
operational capability and promote the maintenance of fair and orderly 
markets.\25\ The proposed rule change is necessary to ensure the 
ongoing resiliency of the Exchange's infrastructure and underling 
technology to ensure the Exchange continues to satisfy its requirements 
under Reg. SCI. The Exchange takes pride in the reliability and 
availability of its System. The proposed rule change is necessary due 
to technological complexity and to continue to ensure the System 
operates consistent with the Exchange's rules and in accordance with 
the Exchange's obligations under Reg. SCI.
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    \24\ 17 CFR 242.1000-1007.
    \25\ 17 CFR 242.1001(a).
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    Lastly, the proposed clarifying changes to Exchange Rules 
2614(e)(3) and 2616(a)(5) removes impediments to and perfect a free and 
open market system because they simply clarify each rule and ensure the 
use of consistent terminology across the Exchange's rulebook. Neither 
of these changes amend the meaning or operation of either rule.

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 
not being proposed for competitive reasons. As discussed above, the 
need for the proposed rule change became apparent when making 
technology changes related to the Exchange's upcoming implementation of 
the Reserve Quantity and Minimum Execution Quantity order 
instructions.\26\ Further, this proposed rule change to cause an order 
to lose priority when the order's position is changed during a Short 
Sale Period via a Cancel/Replace message is no different than where an 
Equity Member seek to change the position of their order by cancelling 
that order and re-submitting a new order. In each case, the order will 
receive a new timestamp at the time the position was changed via a 
cancel or replace message.
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    \26\ See supra note 9.
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    Adjusting the order's timestamp due to a position change via a 
Cancel/Replace message during a Short Sale Period does not impose any 
burden on inter-market competition that is not necessary or appropriate 
in furtherance of the Act. Equity Members may take into consideration 
that their order may experience a loss in priority when they change 
their order's position during a Short Sale Period when determining 
where to send their order for execution. Equity Members are free to 
consider this change as part of their overall experience on the 
Exchange, including the quality of executions and other functionality 
offerings, which are part of their order routing decisions.
    Lastly, adjusting the order's timestamp due to a position change 
via a Cancel/Replace message during a Short Sale Period does not also 
impose any burden on intra-market competition that is not necessary or 
appropriate in furtherance of the Act because it is similar to 
functionality on other exchanges.\27\ Also, like above for intra-market 
competition, Equity Members may take into consideration that their 
order may experience a loss in priority when they change their order's 
position during a Short Sale Period when determining where to send 
their order for execution. Equity Members who make position changes 
during a Short Sale Period may consider the potential that their order 
may lose priority and may choose to price their orders more 
aggressively.
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    \27\ See supra notes 19 and 20.
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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

    Within 45 days of the date of publication of this notice in the 
Federal Register, or such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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-2021-35 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-2021-35. 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

[[Page 43283]]

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-2021-35, and should be submitted on or before August 27, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-16789 Filed 8-5-21; 8:45 am]
BILLING CODE 8011-01-P


