[Federal Register Volume 86, Number 213 (Monday, November 8, 2021)]
[Notices]
[Pages 61796-61798]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-24325]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93506; File No. SR-PEARL-2021-35]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Exchange 
Rule 2616, Priority of Orders

November 2, 2021.

I. Introduction

    On July 20, 2021, MIAX PEARL, LLC (``MIAX Pearl'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend Exchange Rule (``Rule'') 2616, Priority of Orders, to provide 
that an order receive a new timestamp when its position is modified via 
a Cancel/Replace message during a short sale period. The proposed rule 
change was published for comment in the Federal Register on August 6, 
2021.\3\ On September 16, 2021, pursuant to Section 19(b)(2) of the 
Act,\4\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ On September 28, 2021, the Exchange filed 
Amendment No. 1 to the proposed rule change.\6\ The Commission has 
received no comments on the proposed rule change. This order provides 
notice of the filing of Amendment No. 1 to the proposed rule change, 
and grants approval to the proposed rule change, as

[[Page 61797]]

modified by Amendment No. 1, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 92545 (August 2, 
2021), 86 FR 43279 (August 6, 2021) (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 93024 (September 16, 
2021), 86 FR 52704 (September 22, 2021). The Commission designated 
November 4, 2021, as the date by which the Commission shall approve 
or disapprove, or institute proceedings to determine whether to 
disapprove, the proposed rule change.
    \6\ In Amendment No. 1, the Exchange amended the proposal to: 
(1) Provide additional explanation and rationale for the proposed 
rule change; (2) describe how the proposed rule change should have 
minimal impact based on past trading activity on the Exchange; (3) 
enhance statements concerning each equity member's obligations to 
comply with Regulation SHO (17 CFR 242.200 et seq.); and (4) correct 
minor typographical errors. Amendment No. 1 is available on the 
Commission's website at https://www.sec.gov/comments/sr-pearl-2021-35/srpearl202135-9304453-259866.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    Rule 2616(a)(5) currently provides that, in the event an order has 
been cancelled or replaced in accordance with 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.\7\ Under the current rule, any other modification 
to an order, including an increase in the size of the order and/or 
price change, results 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.\8\
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    \7\ See Rule 2616(a)(5); Notice at 43280.
    \8\ See Rule 2616(a)(5); Notice at 43280.
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    The Exchange has proposed to amend Rule 2616(a)(5) such that an 
order resting on the MIAX Pearl Equities trading platform that is 
modified via a Cancel/Replace message,\9\ in accordance with Rule 
2614(e), to change its position in one of the ways enumerated in Rule 
2616(a)(5) would retain its timestamp only if the position change 
occurs when a short sale period is not in effect (and there is no 
additional modification to the order that would trigger a new 
timestamp, such as an increase in size or price change).\10\ As a 
result, unlike under the current rule, under proposed Rule 2616(a)(5) 
an order that is modified via a Cancel/Replace message, in accordance 
with Rule 2614(e), to change its position as enumerated in Rule 
2616(a)(5) would receive a new timestamp when the position change 
occurs during a short sale period, even if, for example, the order's 
price remains unchanged.\11\ Such modification to an order during a 
short sale period would result in the order losing time priority 
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.\12\
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    \9\ As discussed below, the Exchange proposes to replace the 
phrase ``cancelled or replaced'' in Rule 2616(a)(5) with the phrase 
``modified via a Cancel/Replace message.''
    \10\ See proposed Rule 2616(a)(5); Notice at 43280. See also 
Rule 2614(g)(3)(A) (stating that a short sale period is the time 
when ``a short sale price test restriction under Rule 201 of 
Regulation SHO'' is in effect); 17 CFR 242.201.
    \11\ See proposed Rule 2616(a)(5); Notice at 43280.
    \12\ See proposed Rule 2616(a)(5); Notice at 43280.
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    The Exchange states that this proposed rule change stems from 
changes to the underlying technology for its re-pricing processes for 
the displayed and non-displayed portions of an order with a Reserve 
Quantity,\13\ which, in turn, impacted how its system determines 
whether a short sale order must be re-priced to comply with Regulation 
SHO.\14\ The Exchange further states that, due to these technology 
changes and the interaction and technological complexity of its 
system's order re-pricing processes, this proposal would entail 
adjusting the Exchange's re-pricing process to re-evaluate an order for 
execution when the order's position is modified, via a Cancel/Replace 
message, during a short sale period and there is no corresponding 
change to the order's price.\15\ This, according to the Exchange, would 
result in the order receiving a new timestamp, including where the 
order's price remains unchanged.\16\ According to the Exchange, it has 
proposed this rule change in an abundance of caution to reinforce the 
reliability, resiliency, and continued operation of its system and 
underlying technology.\17\
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    \13\ See Amendment No. 1, at 3.
    \14\ See id. at 3-4. See also 17 CFR 242.201; Rule 2614(g)(3)(C) 
(setting forth the Exchange's short sale price sliding process).
    \15\ See Amendment No. 1, at 4-5. The Exchange states that, 
currently, an order is not re-evaluated for execution when its 
position is modified unless the order receives a new price. See id. 
at 5 n.7.
    \16\ Id. at 4-5.
    \17\ Id.
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    In addition, the Exchange states that the proposed rule change is 
designed to address a discrete and potentially limited scenario, and 
states, by way of example, that between July 1, 2021 and September 7, 
2021, there were no position modifications via a Cancel/Replace message 
that would have resulted in a new timestamp and loss in priority based 
on the proposed functionality, had it been in effect.\18\ Further, the 
Exchange states that a change in an order's price or position as well 
as an increase in an order's size via a Cancel/Replace message 
implicitly result in a new order, and all Exchange equity members 
therefore must ensure continued compliance with the order marking and 
locate requirements of Regulation SHO, including compliance with 
Question 2.6 of the Commission's ``Responses to Frequently Asked 
Questions Concerning Regulation SHO.'' \19\
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    \18\ Id. at 5-6.
    \19\ Id. at 7. See also 17 CFR 242.201; Responses to Frequently 
Asked Questions Concerning Regulation SHO, available at: https://www.sec.gov/divisions/marketreg/mrfaqregsho1204.htm.
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    The Exchange also has proposed to replace the phrase ``cancelled or 
replaced'' in Rule 2616(a)(5) with the phrase ``modified via a Cancel/
Replace message,'' so as to clarify within Rule 2616(a)(5) that the 
order is being modified, rather than cancelled and replaced with a new 
order.\20\ Relatedly, the Exchange has proposed a conforming change to 
Rule 2614(e)(3) to add the word ``Cancel'' before the word ``Replace'' 
to make its rulebook terminology consistent in referring to a ``Cancel/
Replace message.'' \21\ The Exchange states that these proposed changes 
do not amend the meaning or operation of either rule.\22\
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    \20\ See proposed Rule 2616(a)(5); see also Notice at 43280.
    \21\ See proposed Rule 2614(e)(3); see also Notice at 43280.
    \22\ See Notice at 43280.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\23\ In particular, the 
Commission finds that the proposal is consistent with Section 6(b)(5) 
of the Act,\24\ which requires, among other things, that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, 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, and that those 
rules not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \23\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \24\ 15 U.S.C. 78f(b)(5).
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    As discussed above, the Exchange has proposed to amend Rule 
2616(a)(5) such that an order resting on the MIAX Pearl Equities 
trading platform would receive a new timestamp when the order's 
position is modified via a Cancel/Replace message during a short sale 
period regardless of whether there is a corresponding change to the 
order's price. The Commission believes that this proposal should 
facilitate the

[[Page 61798]]

Exchange's ability to fulfill its regulatory obligations, particularly 
with regard to the operation and resilience of its system and 
compliance with Regulation SHO. Moreover, the Exchange has represented, 
and assessed historical practices on the Exchange to verify, that it 
likely would be an uncommon occurrence for an order to lose time 
priority as a result of the change in functionality proposed herein. 
Thus, the proposed rule change appears to be designed to implicate a 
discrete and limited order book scenario. Further, the Commission 
believes that the proposed functionality, in addition to likely being 
implicated infrequently, will be fully transparent to market 
participants. Lastly, the Commission believes that the proposed change 
to Rule 2616(a)(5) to replace the phrase ``cancelled or replaced'' with 
the phrase ``modified via a Cancel/Replace message'' and the proposed 
conforming change to Rule 2614(e)(3) should enhance the clarity and 
consistency of the terminology used in the Exchange's rules, which 
should help mitigate the potential for market participant confusion.
    For the reasons discussed above, the Commission finds that this 
proposed rule change, as modified by Amendment No. 1, is consistent 
with the requirements of the Act because it is designed to prevent 
fraudulent and manipulative acts and practices, promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and 
protect investors and the public interest, and is not designed to 
permit unfair discrimination.

IV. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
is consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. 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 No. SR-PEARL-2021-35. The file 
numbers 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 such 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 publicly available. All submissions 
should refer to File No. SR-PEARL-2021-35 and should be submitted on or 
before November 29, 2021.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the amended proposal in the 
Federal Register. In Amendment No. 1, the Exchange amended the proposal 
to: (1) Provide additional explanation and rationale for the proposed 
rule change; (2) describe how the proposed rule change should have 
minimal impact based on past trading activity on the Exchange; (3) 
enhance statements concerning each equity member's obligations to 
comply with Regulation SHO; and (4) correct minor typographical errors. 
Amendment No. 1 adds clarity and justification to the proposal, and 
does not alter the proposed change in system functionality from what is 
set forth in the Notice, which was subject to a full comment period. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\25\ to approve the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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    \25\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-PEARL-2021-35), as modified 
by Amendment No. 1, be, and hereby is, approved on an accelerated 
basis.
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    \26\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-24325 Filed 11-5-21; 8:45 am]
BILLING CODE 8011-01-P


