[Federal Register Volume 87, Number 214 (Monday, November 7, 2022)]
[Notices]
[Pages 67080-67086]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24146]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96205; File No. SR-PEARL-2022-43]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 
2614, Orders and Order Instructions and Rule 2618, Risk Settings and 
Trading Risk Metrics To Enhance Existing Risk Controls

November 1, 2022.
    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 October 19, 2022, 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 enhance its 
existing risk controls and provide Equity Members \3\ additional risk 
controls when trading equity securities on the Exchange's equity 
trading platform (referred to herein as ``MIAX Pearl Equities'').
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    \3\ The term ``Equity Member'' is a Member authorized by the 
Exchange to transact business on MIAX Pearl Equities. See Exchange 
Rule 1901.
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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

Purpose
    The purpose of the proposed rule change is to enhance certain 
existing risk controls and provide Equity Members additional risk 
controls when trading equity securities on MIAX Pearl Equities. To help 
Equity Members manage their risk, the Exchange currently offers Limit 
Order Price Protection and other risk controls that authorize the 
Exchange to take automated action if a designated limit for an Equity 
Member is breached. Such risk controls provide Equity Members with 
enhanced abilities to manage their risk when trading on the Exchange. 
The Exchange now proposes to amend Limit Order Price Protection under 
Exchange Rule 2614(a)(1)(I) and amend Exchange Rule 2618 to enhance 
certain existing risk controls and provide additional optional risk 
controls to Equity Members. Each of these changes are described below.
Limit Order Price Protection
    Limit Order Price Protection is set forth under Exchange Rule 
2614(a)(1)(I) and provides for the cancellation of Limit Orders priced 
too far away from a specified reference price at the time the order 
first becomes eligible to trade. A Limit Order entered before Regular 
Trading Hours \4\ that becomes eligible to trade during Regular Trading 
Hours will be subject to Limit Order Price Protection at the time 
Regular Trading Hours begins.\5\
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    \4\ The term ``Regular Trading Hours'' means the time between 
9:30 a.m. and 4:00 p.m. Eastern Time. See Exchange Rule 1901.
    \5\ Further, a Limit Order in a security that is subject to a 
trading halt becomes first eligible to trade when the halt is lifted 
and continuous trading has resumed. See Exchange Rule 
2614(a)(1)(I)(iii).
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    Exchange Rule 2614(a)(1)(I)(i) provides that a Limit Order to buy 
(sell) will be rejected if it is priced at or above (below) the greater 
of a specified dollar value and percentage away from the following: (1) 
the PBO for Limit Orders to buy, the PBB for Limit Orders to sell; (2) 
if the PBO or PBB is unavailable, the consolidated last sale price 
disseminated during the Regular Trading Hours on trade date; (3) if the 
PBO, PBB, and a consolidated last sale price are unavailable, the prior 
day's Official Closing Price identified as such by the primary listing 
exchange, adjusted to account for events such as corporate actions and 
news events. Exchange Rule 2614(a)(1)(I)(iii) provides that Limit Order 
Price Protection will not be applied if the prices listed above are 
unavailable. Equity Members have requested that Limit Order Price 
Protection also not be applied when the prior day's Official Closing 
Price is to be used when the PBO, PBB, and a consolidated last sale 
price are unavailable and a trading halt has been declared by the 
primary listing market during that trading day. The Exchange 
understands that Equity Members believe the Official Closing Price does 
not appropriately relate to the current trading behavior of the 
security in such a scenario and Equity Members would prefer Limit Order 
Price Protection not be applied since it may result in their Limit 
Order being unnecessarily rejected. The Exchange, therefore, proposes 
to amend Exchange Rule 2614(a)(1)(I)(iii) to provide that Limit Order 
Price Protection would not be applied when a regulatory halt has been 
declared by the primary listing market during that trading day and the 
Exchange would have applied the prior day's Official Closing Price 
because the PBO, PBB, and a consolidated last sale price are 
unavailable.

[[Page 67081]]

    Exchange Rule 2614(a)(1)(I)(ii) provides Equity Members the ability 
to customize their specified dollar and percentages on a per session 
\6\ basis. If an Equity Member does not provide the Exchange specified 
dollar values or percentages for their order(s), default specified 
dollar and percentages established by the Exchange will be applied.\7\ 
Equity Members have expressed the need for additional flexibility by 
being able to customize their dollar and percentage thresholds on a per 
Market Participant Identifier (``MPID'') basis, rather than only on a 
per session basis. Equity Members requested this flexibility so that 
they can customize their dollar and percentage thresholds individually 
for each of their MPIDs based on their risk appetite. Therefore, the 
Exchange proposes to amend Exchange Rule 2614(a)(1)(I)(ii) to also 
allow Equity Members to customize the specified dollar and percentages 
on a per MPID basis.
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    \6\ ``Sessions'' is a defined group of connections to the 
Exchange's System.
    \7\ The default specified dollar and percentages are posted to 
the Exchange's website here: https://www.miaxequities.com/system-configuration/pearl-equities.
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Per-Order Risk Controls
    The Exchange offers Equity Members the ability to establish certain 
risk control parameters that assist Equity Members in managing their 
market risk on a per order basis. These optional risk controls are set 
forth under Exchange Rule 2618(a)(1) and offer Equity Members 
protection from entering orders outside of certain size and price 
parameters, and selected order type and modifier combinations, as well 
as protection from the risk of duplicative executions. The Exchange 
also permits Equity Members to block new orders, to cancel all open 
orders, block both new orders and cancel all open orders, and 
automatically cancel all orders to the extent the Equity Member loses 
its connection to MIAX Pearl Equities.\8\ The risk controls are 
available to all Equity Members, but are particularly useful to Market 
Makers, who are required to continuously quote in the Equity Securities 
to which they are assigned.
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    \8\ See Exchange Rule 2618(a)(7)(a) (proposed herein to be 
renumbered as Exchange Rule 2618(a)(7)(A)). The Exchange also 
proposes to renumber Exchange Rule 2618(a)(7)(b) as Exchange Rule 
2618(a)(7)(B).
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    As an initial matter, the Exchange proposes to amend Exchange Rule 
2618(a)(5) and (6) to incorporate the risk controls set forth under 
Exchange Rule 2618(a)(1). Exchange Rule 2618(a)(5) currently provides 
that for the risk settings identified in Exchange Rule 2618(a)(2) 
(discussed below), both the Equity Member and the Clearing Member (if 
allocated such responsibility pursuant to Exchange Rule 2618(a)(4)) may 
enable alerts to signal when the Equity Member is approaching 
designated limits. Equity Members are also able to enable alerts for 
risk settings set forth under Exchange Rule 2618(a)(1) and the Exchange 
proposes to codify this option in Exchange Rule 2618(a)(5). Therefore, 
Exchange Rule 2618(a)(5) would provide that for the risk settings 
identified in Exchange Rule (a)(1), the Equity Member may enable alerts 
to signal when the Equity Member is approaching designated limits 
provided for in the applicable risk control.
    Exchange Rule 2618(a)(6) currently provides that if a risk setting 
identified in Exchange Rule 2618(a)(2) is breached, the Exchange will 
automatically block new orders submitted and cancel open orders until 
such time that the applicable risk control is adjusted to a higher 
limit by the Equity Member or Clearing Member with the responsibility 
of establishing and adjusting the risk settings identified in paragraph 
(a)(2). The same is true for risk settings set forth under Exchange 
Rule 2618(a)(1) and the Exchange proposes to codify this option in 
Exchange Rule 2618(a)(6) by adding references to Exchange Rule 
2618(a)(1) and providing that the Exchange will automatically block new 
orders submitted and cancel open orders based on the applicable risk 
control. Whether the Exchange automatically blocks new orders or 
cancels open orders would depend on the nature of the applicable risk 
control. For example, the Exchange would block an order if it was an 
order type that the Equity Member instructed the Exchange to block 
pursuant to Exchange Rule 2618(a)(1)(C) or was entered in a Principal 
capacity and to be blocked pursuant to proposed Exchange Rule 
2618(a)(1)(E). The Exchange would cancel an order in a security resting 
on the MIAX Pearl Equities Book where, for purposes of the cumulative 
risk controls under Exchange Rule 2618(a)(2), an order is entered in a 
security that breaches the threshold selected by the Equity Member and 
the Equity Member instructed the Exchange to cancel the resting 
orders.\9\ The Exchange provides an internet-facing portal via its 
website that Equity Members access using unique login credentials. The 
online portal provides self-service functions to Equity Members.\10\ 
Equity Members may use the Exchange's online portal to establish or 
adjust risk controls set forth under Exchange Rule 2618(a)(1) and (2) 
and may establish or adjust those controls at the beginning of each 
trading day or intra-day.
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    \9\ In such case, the Exchange would also reject the order that 
breaches the threshold selected by the Equity Member.
    \10\ See Member Firm Portal User Manual, available at https://www.miaxoptions.com/sites/default/files/knowledge-center/2022-06/MIAX_Exchanges_Member_Firm_Portal_User_Manual_05262022.pdf (last 
visited October 13, 2022).
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    The Exchange also proposes to amend Exchange Rule 2618(a)(1) to 
provide additional optional per order risk controls to Equity 
Members.\11\ The proposed controls would relate to the entry of orders 
placed in a Principal or Riskless Principal capacity, the size of an 
order as compared to the average daily volume (``ADV'') of the 
security, orders in securities on the Equity Member's restricted 
securities list, and controls related to the frequency at which orders 
and/or Cancel/Replace messages are entered. Specifically, Exchange Rule 
2618(a)(1)(E) would provide for the prevention of the entry of orders 
placed in a Principal or Riskless Principal capacity. An Equity Member 
would be able to instruct the Exchange to reject any orders marked with 
the capacity of Principal or Riskless Principal or convert such orders 
to an Agency capacity. In such case, only orders with a capacity of 
Agency would be accepted. This control is similar to existing controls, 
such as controls to block an order type or modifier under Exchange Rule 
2618(a)(1)(C), because both instruct the Exchange to reject an order 
that includes certain specific characteristics, such as an order 
modifier, or in this case, a specific capacity. This proposed risk 
setting may also assist Equity Members in complying with Exchange Rule 
2603, which requires Equity Members to ``input accurate information 
into the System, including, but not limited to, whether the Equity 
Member acted in a Principal, Agent, or Riskless Principal capacity for 
each order entered'' by preventing the entry of an order in a Principal 
capacity where it seeks to only enter orders in an Agency capacity.
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    \11\ The Exchange also proposes to amend Exchange Rule 2618 to 
replace all references to the term ``User'' with ``Equity Member'' 
to ensure consistent terminology is used within the Rule. This is a 
non-substantive change since the risk controls under Exchange Rule 
2618 are only available to Equity Members and, therefore, this 
proposed change does not alter the operation or application of 
Exchange Rule 2618.
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    Exchange Rule 2618(a)(1)(F) would provide for controls preventing 
the entry of an order or order modification request with a size that 
exceeds the

[[Page 67082]]

ADV \12\ of the security multiplied by a percentage selected by the 
Equity Member when the ADV of the security is greater than a specified 
minimum ADV selected by the Equity Member \13\ When opting into this 
protection, the Equity Member would need to configure an ADV percentage 
and ``minimum ADV'' for the security. A minimum ADV is required in the 
security for the control to be applied. For example, an Equity Member 
may indicate that for any securities with an ADV of 3,000 shares or 
less, the ADV check should not be applied. The Equity Member sets the 
minimum ADV, but the ADV percentage only applies if the ADV in the 
security is higher than the minimum ADV selected by the Equity Member. 
Pursuant to amended Exchange Rule 2618(a)(6), the Exchange would 
automatically block new orders or order modification requests until 
such time that this risk control is adjusted to a higher limit by the 
Equity Member. Another example, assume the ADV in security ABCD is 
2,000 shares and the Equity Member sets a custom percentage of 10% and 
a minimum ADV of 1,500 shares. In such case, the risk control would be 
applied as 1,500 < 2,000 with an ADV check threshold of 200 shares (10% 
x 2,000 = 200 shares). The Equity Member then submits an order for 200 
shares and that order is accepted by the Exchange. However, the 
Exchange would reject an order where that Equity Member entered an 
order for greater than 200 shares.
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    \12\ The ADV would be calculated over the prior 20 trading days 
and would account for trading days with an early close.
    \13\ This control is based on Interpretations and Policies 
.01(g) of EDGX Rule 11.10 and EDGA Rule 11.10.
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    Exchange Rule 2618(a)(1)(G) would provide controls related to 
orders in securities on the Equity Member's restricted securities list. 
Generally speaking, a restricted list is a current list of securities 
in which the Equity Member prohibits proprietary, employee and certain 
solicited customer transactions in a security. This control would 
instruct the Exchange to reject any order in a security that is 
included on the Equity Member's restricted securities list pursuant to 
amended Exchange Rule 2618(a)(6).\14\ Lastly, Exchange Rule 
2618(a)(1)(H) would provide for controls related to the frequency at 
which orders and/or Cancel/Replace messages are entered and that 
instruct the Exchange to reject an order or Cancel/Replace message that 
are entered at a pace that exceeds a certain frequency.\15\ In such 
case, the Equity Member sets the time window in which the Exchange will 
count the number of order or Cancel/Replace messages that are received. 
The Exchange would prevent the entry of new orders or Cancel/Replace 
messages until a certain amount of time selected by the Equity Member 
has passed or the Equity Member has reset this control. Pursuant to 
amended Exchange Rule 2618(a)(5), an Equity Member may enable alerts to 
signal when the Equity Member is approaching designated frequency 
limits. This control is similar to existing controls, such as controls 
to block an order type or modifier under Exchange Rule 2618(a)(1)(C), 
because both instruct the Exchange to reject an order that includes 
certain specific characteristics, such as an order modifier, or in this 
case, is entered within a certain time of an earlier order or Cancel/
Replace message.
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    \14\ This control is based on Interpretations and Policies 
.01(d) of EDGX Rule 11.10 and EDGA Rule 11.10.
    \15\ This control is based on Interpretations and Policies 
.01(f) of EDGX Rule 11.10 and EDGA Rule 11.10. Rejection of orders 
under Exchange Rule 2618(a)(1)(H) is provided for in Exchange Rule 
2618(a)(6).
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    Currently, Equity Members are able to customize thresholds 
applicable to the current risk controls under Exchange Rule 2618(a)(1) 
on a per session or indirectly on a firm level basis \16\ and the 
Exchange proposes to codify this optionality under Exchange Rule 
2618(a)(3) by adding a reference to Exchange Rule 2618(a)(1). The 
Exchange also proposes to now allow Equity Members further flexibility 
by allowing them to customize thresholds applicable to the current risk 
controls and the new risk controls described above and set forth under 
Exchange Rule 2618(a)(1) on a MPID basis. Equity Members have requested 
this added flexibility so that they may separately manage their order 
flow at a more granular level.
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    \16\ See Section 9 of the MIAX Pearl Equities Exchange User 
Manual available at MIAX_Pearl_Equities_User_Manual_June_2022.pdf 
(miaxoptions.com) (last visited September 19, 2022); and Section 1 
of the MIAX Pearl Equities Exchange Port Attributes document 
available at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_PEARL_Equities_Port_Attributes_v2.0.pdf (last visited 
September 19, 2022). The Exchange does not currently expressly 
permit Equity Members to set the controls listed under Exchange Rule 
2614(a)(1) on a firm level basis. However, Equity Members may 
achieve firm level settings for controls listed under Exchange Rule 
2614(a)(1) by setting all of their MPID and session level settings 
to the same threshold.
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    Exchange Rule 2618(a)(3) currently provides, in sum, that either an 
Equity Member or its Clearing Member may establish and adjust limits 
for the risk settings provided in Exchange Rule 2618(a)(2) (described 
below). Exchange Rule 2618(a)(3)(A) further provides that these limits 
or thresholds may be set at the MPID, session, or firm level.\17\ 
Exchange Rule 2618(a)(3) does not currently include the risk settings 
under Exchange Rule 2618(a)(1). Therefore, the Exchange proposes to 
amend Exchange Rule 2618(a)(3) to include the risk settings under 
Exchange Rule 2618(a)(1) to codify that they may be set at the firm or 
session level and to further provide that they may also be set at the 
MPID level by including the following sentence: ``[a]n Equity Member 
may set limits for the risk settings provided in paragraph (a)(1) of 
this Rule 2618.'' Exchange Rule 2618(a)(3)(B) also provides that such 
limits may be established or adjusted before the beginning of a trading 
day or during the trading day. This is currently true for the controls 
under Exchange Rule 2618(a)(1) and adding reference to this rule above 
to Exchange Rule 2618(a)(3) would codify this functionality and add 
this additional specificity to the Rule.
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    \17\ Id.
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    The level at which the limits for a certain control could be set 
would depend on the nature of the control. Specifically, Equity Members 
are or would be able to set risk settings on a session and/or MPID 
level for the controls listed under Exchange Rule 2618(a)(1)(A), (B), 
and (C), and proposed Exchange Rule 2618(a)(1)(E), (F), and (G). 
Controls to prohibit the entry of duplicative orders under Exchange 
Rule 2618(a)(1)(D) may only be able to be set at the session level, but 
due to the nature of the check, the controls would also monitor for 
duplicative orders sent from the same MPID. Controls related to the 
frequency of orders and Cancel/Replace messages under proposed Exchange 
Rule 2618(a)(1)(H) may be set at the session, firm, and MPID level.
Cumulative Risk Controls
    Exchange Rule 2618(a)(2) sets forth the specific cumulative risk 
settings the Exchange offers and include Gross Notional Trade Value and 
Net Notional Trade Value. Gross Notional Trade Value is a pre-
established maximum daily dollar amount for purchases and sales across 
all symbols, where both purchases and sales are counted as positive 
values. Net Notional Trade Value is a pre-established maximum daily 
dollar amount for purchases and sales across all symbols, where 
purchases are counted as positive values and sales are counted as 
negative values. For purposes of calculating the Gross Notional Trade 
Value and Net Notional Trade Value, only executed orders are 
included.\18\
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    \18\ The Exchange also proposes to amend the descriptions of 
Gross Notional Trade Value and Net Notional Trade Value under 
Exchange Rules 2618(a)(2) to replace the unnecessary phrase ``which 
refers to'' with the word ``is''. These changes do not alter the 
operation of either risk control.

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[[Page 67083]]

    Based on Equity Member demand, the Exchange proposes to adopt the 
following two additional cumulative risk controls that take into 
account open, unexecuted orders, Gross Notional Open Value and Net 
Notional Open Value. Proposed Exchange Rule 2618(a)(2)(C) would provide 
that the Gross Notional Open value is a pre-established maximum daily 
dollar amount for open buy and sell orders across all symbols, where 
both open orders to buy and sell are counted as positive values. For 
purposes of calculating the Gross Notional Open Value, only unexecuted 
orders are included. Proposed Exchange Rule 2618(a)(2)(D) would provide 
that the Net Notional Open Value is a pre-established maximum daily 
dollar amount for open buy and sell orders across all symbols, where 
open orders to buy are counted as positive values and open orders to 
sell are counted as negative values. For purposes of calculating the 
Net Notional Open Value, only unexecuted orders are included, just like 
the Gross Notional Open Value risk control.
    For both the Gross Notional Open Value and Net Notional Open Value 
risk settings, the open orders calculation would only include Limit 
Orders resting on the MIAX Pearl Equities Book and Limit Orders that 
have been routed to an away exchange for execution. Limit Orders and 
Pegged Orders will be included at their limit price. Market Orders 
would not be included. Both the Gross Notional Open Value and Net 
Notional Open Value risk settings are completely optional and would not 
be applied where the Equity Member does not set the applicable 
threshold.
    Exchange Rule 2618(a)(4) provides that an Equity Member that does 
not self-clear may allocate and revoke \19\ the responsibility of 
establishing and adjusting the Gross Notional Trade Value and Net 
Notional Trade Value settings to a Clearing Member \20\ that clears 
transactions on behalf of the Equity Member, if designated in a manner 
prescribed by the Exchange. The Exchange proposes that the same would 
be true for the new Gross Notional Open Value and Net Notional Open 
Value settings.
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    \19\ As discussed below, if an Equity Member revokes from its 
Clearing Member the responsibility of establishing and adjusting the 
risk settings identified in paragraph (a)(2), the settings applied 
by the Equity Member would be applicable.
    \20\ The term ``Clearing Member'' refers to a Member that is a 
member of a Qualified Clearing Agency and clears transactions on 
behalf of another Member. See Exchange Rule 2620(a). Exchange Rule 
2620(a) also outlines the process by which a Clearing Member shall 
affirm its responsibility for clearing any and all trades executed 
by the Equity Member designating it as its Clearing Firm, and 
provides that the rules of a Qualified Clearing Agency shall govern 
with respect to the clearance and settlement of any transactions 
executed by the Equity Member on the Exchange.
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    By way of background, Exchange Rule 2620(a) allows Clearing Members 
an opportunity to manage their risk of clearing on behalf of other 
Equity Members, if authorized to do so by the Equity Member trading on 
the Exchange. Such functionality is designed to help Clearing Members 
better monitor and manage the potential risks that they assume when 
clearing for Equity Members of the Exchange. An Equity Member may 
allocate or revoke the responsibility of establishing and adjusting the 
risk settings identified in paragraph (a)(2) of Exchange Rule 2618 to 
its Clearing Member in a manner prescribed by the Exchange. By 
allocating such responsibility, an Equity Member cedes all control and 
ability to establish and adjust such risk settings to its Clearing 
Member unless and until such responsibility is revoked by the Equity 
Member. Because the Equity Member is responsible for its own trading 
activity, the Exchange will not provide a Clearing Member authorization 
to establish and adjust risk settings on behalf of an Equity Member 
without first receiving consent from the Equity Member. The Exchange 
considers an Equity Member to have provided such consent if it 
allocates the responsibility to establish and adjust risk settings to 
its Clearing Member in a manner prescribed by the Exchange.
    Exchange Rule 2618(a)(3) provides that either an Equity Member or 
its Clearing Member, if allocated such responsibility pursuant to 
Exchange Rule 2618(a)(4), may establish and adjust limits for the risk 
settings provided in Exchange Rule 2618(a)(2). An Equity Member or 
Clearing Member may establish and adjust limits for the risk settings 
in a manner prescribed by the Exchange. This includes use of the 
Exchange's online portal. The online portal page also provides a view 
of all applicable limits for each Equity Member, which will be made 
available to the Equity Member and its Clearing Member, as currently 
discussed in Exchange Rule 2618(a)(4).
Trading Collar
    In addition to the optional risk control parameters described 
above, the Exchange also prevents all incoming orders, including those 
marked ISO, from executing at a price outside the Trading Collar price 
range and is described in Exchange Rule 2618(b). The Trading Collar 
prevents buy orders from trading or routing at prices above the collar 
and prevents sell orders from trading or routing at prices below the 
collar. The Trading Collar price range is calculated using the greater 
of numerical guidelines for clearly erroneous executions under Exchange 
Rule 2621 or a specified dollar value established by the Exchange.
    Exchange Rule 2618(b)(1) provides that the Trading Collar price 
range is calculated based on a Trading Collar Reference Price and sets 
forth a sequence of prices to determine the Trading Collar Reference 
Price to be used if a certain reference price is unavailable. The 
Exchange first utilizes the consolidated last sale price disseminated 
during the Regular Trading Hours on the trade date as the Trading 
Collar Reference Price. If not available, the prior day's Official 
Closing Price identified as such by the primary listing exchange, 
adjusted to account for events such as corporate actions and news 
events is used. If neither are available to use as the Trading Collar 
Reference Price, the Exchange suspends the Trading Collar function in 
the interest of maintaining a fair and orderly market in the impacted 
security. The Exchange calculates the Trading Collar price range for a 
security by applying the Numerical Guideline and reference price to the 
Trading Collar Reference Price. The result is added to the Trading 
Collar Reference Price to determine the Trading Collar Price for buy 
orders, while the result is subtracted from the Trading Collar 
Reference Price to determine the Trading Collar Price for sell orders. 
Exchange Rule 2618(b)(1) further provides that upon entry, any portion 
of an order to buy (sell) that would execute at a price above (below) 
the Trading Collar Price is cancelled.
    Like proposed above for Limit Order Price Protection, Equity 
Members have requested that the Trading Collar not be applied when the 
prior day's Official Closing Price is to be used when the a 
consolidated last sale price is unavailable and a regulatory halt has 
been declared by the primary listing market during that trading day. 
The Exchange understands that Equity Members believe the Official 
Closing Price does not appropriately relate to the current trading 
behavior of the security in such a scenario and Equity Members would 
prefer the Trading Collar not be applied since it may result in their 
order being unnecessarily rejected. The Exchange, therefore,

[[Page 67084]]

proposes to amend Exchange Rule 2618(b)(1) to provide that upon entry, 
an order priced outside the Trading Collar would not be rejected when a 
trading halt has been declared by the primary listing market during 
that trading day and the Exchange would have applied the prior day's 
Official Closing Price because the consolidated last sale price is 
unavailable. In such case, the Exchange would accept such Limit Order 
and post it on the MIAX Pearl Equities Book at its limit price.\21\
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    \21\ In such case, a Limit Order would continue to be subject to 
the Exchange's applicable re-pricing processes. See Exchange Rule 
2614(a)(1)(E)-(H).
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* * * * *
    The Exchange does not guarantee that the risk settings in this 
proposal are sufficiently comprehensive to meet all of an Equity 
Member's risk management needs. Pursuant to Rule 15c3-5 under the 
Act,\22\ a broker-dealer with market access must perform appropriate 
due diligence to assure that controls are reasonably designed to be 
effective, and otherwise consistent with the rule.\23\ Use of the 
Exchange's risk settings included in Exchange Rule 2618 will not 
automatically constitute compliance with Exchange or federal rules and 
responsibility for compliance with all Exchange and SEC rules remains 
with the Equity Member.
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    \22\ 17 CFR 240.15c3-5.
    \23\ See Division of Trading and Markets, Responses to 
Frequently Asked Questions Concerning Risk Management Controls for 
Brokers or Dealers with Market Access, available at https://www.sec.gov/divisions/marketreg/faq-15c-5-risk-management-controls-bd.htm.
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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 the proposed enhancements to its risk controls 
set forth herein. The Exchange anticipates that the implementation date 
will be in the fourth quarter of 2022.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\24\ in general, and furthers the objectives of Section 
6(b)(5),\25\ 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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    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes the proposed amendments will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because they provide additional 
functionality for an Equity Member to manage its risk. The Exchange 
notes that all of the proposed changes, risk settings, and related 
functionality are entirely optional. The Exchange believes that the 
proposed risk settings under Exchange Rule 2618(a)(1) and (2) are 
designed to protect investors and the public interest because the 
proposed additional functionality is a form of risk mitigation that 
will aid Equity Members and Clearing Members in minimizing their 
financial exposure and reduce the potential for disruptive, market-wide 
events. In turn, the introduction of such risk management functionality 
could enhance the integrity of trading on the securities markets and 
help to assure the stability of the financial system. The proposed rule 
change would provide an additional option for Equity Members seeking to 
further tailor their risk management capability while transacting on 
the Exchange.
Risk Controls Under Exchange Rule 2618(a)(1)
    The proposed risk settings under Exchange Rule 2618(a)(1) promote 
just and equitable principles of trade because they would provide 
Equity Members with additional protections to manage trading risk and 
market exposure. Certain of the proposed additional risk settings are 
available on other equity exchanges \26\ or similar to existing risk 
settings. Specifically, proposed Exchange Rule 2618(a)(1)(E) regarding 
the entry of orders in a Principal or Riskless Principal capacity is 
similar to existing controls, such as controls to block an order type 
or modifier under Exchange Rule 2618(a)(1)(C), because it instructs the 
Exchange to reject an order that includes certain specific 
characteristics, such as an order modifier, or in this case, is entered 
with a specific capacity. Further the proposed controls under Exchange 
Rule 2618(a)(1)(F), (G), and (H) are based on the rules of other 
national securities exchange. For example, proposed Exchange Rule 
2618(a)(1)(F) provides for the prevention of the entry of an order or 
order modification request with a size that exceeds the average daily 
trading volume of the security is based on Interpretations and Policies 
.01(g) of EDGX Rule 11.10 and EDGA Rule 11.10. Proposed Exchange Rule 
2618(a)(1)(G) regarding the entry of orders in securities on an Equity 
Member's restricted list is based on Interpretations and Policies 
.01(d) of EDGX Rule 11.10 and EDGA Rule 11.10. Finally, proposed 
Exchange Rule 2618(a)(1)(H) regarding the frequency of orders and 
Cancel/Replace messages is based on Interpretations and Policies .01(f) 
of EDGX Rule 11.10 and EDGA Rule 11.10.
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    \26\ See supra notes 13-15.
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    The Exchange believes amending Exchange Rule 2618(a)(3) to 
incorporate the risk controls under Exchange Rule 2618(a)(1) promotes 
just and equitable principles of trade because it simply codifies an 
Equity Member's ability to customize thresholds applicable to the 
current risk controls under Exchange Rule 2618(a)(1) on a per session 
or indirectly on a firm level basis.\27\ This proposed change would 
also allow Equity Members to customize thresholds applicable to the 
current risk controls and the new risk controls described above and set 
forth under Exchange Rule 2618(a)(1) on a MPID basis. Doing so would 
provide Equity Members with finer granularity with which they may set 
and customize such thresholds and manage order flow.
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    \27\ See supra note 16.
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    The Exchange's proposal to amend Exchange Rule 2618(a)(5) and (6) 
to incorporate the risk controls set forth under Exchange Rule 
2618(a)(1) also promotes just and equitable principles of trade because 
it simply codifies existing behavior and provides additional 
specificity within each Rule. Incorporating Exchange Rule 2618(a)(1) 
within Exchange Rule 2618(a)(5) fosters cooperation and coordination 
with persons facilitating transactions in securities because it will 
codify and make clear that the Exchange will provide alerts when an 
Equity Member's trading activity reaches certain thresholds under the 
risk protections set forth under Exchange Rule 2618(a)(1). Likewise, 
incorporating Exchange Rule 2618(a)(1) within Exchange Rule 2618(a)(6) 
will also codify and make clear that the Exchange will automatically 
block new orders submitted and cancel open orders until such time that 
the applicable risk control is adjusted to a higher limit by the Equity 
Member. Both these changes would provide greater clarity within the 
Exchange's rules and avoid potential investor confusion.

[[Page 67085]]

Proposed Gross Notional Open Value and Net Notional Open Value Risk 
Controls
    The proposed Gross Notional Open Value and Net Notional Open Value 
risk controls under Exchange Rule 2618(a)(2) would further permit 
Equity Members and Clearing Members who have a financial interest in 
the risk settings of Equity Members to better monitor and manage their 
potential risks, including those assumed by Clearing Members, thereby 
providing Equity Members and Clearing Members with greater control and 
flexibility over setting their own risk tolerance and exposure. In 
addition, the proposed additional risk settings under Exchange Rule 
2618(a)(2) could provide Clearing Members, who have assumed certain 
risks of Equity Members, greater control over risk tolerance and 
exposure on behalf of their correspondent Equity Members, if allocated 
responsibility pursuant to Exchange Rule 2618(a)(4), while also 
providing an alert system under Exchange Rule 2618(a)(5) that ensures 
that both Equity Members and Clearing Members are aware of developing 
issues. As such, the Exchange believes that the proposed risk settings 
would provide additional means to address potentially market-impacting 
events, helping to ensure the proper functioning of the market. To the 
extent a Clearing Member might reasonably require an Equity Member to 
provide access to its risk settings as a prerequisite to continuing to 
clear trades on the Equity Member's behalf, the Exchange's sharing of 
those risk settings directly reduces the administrative burden on 
participants on the Exchange, including both Clearing Members and 
Equity Members. Moreover, providing Clearing Members with the ability 
to see the risk settings established for Equity Members for which they 
clear fosters efficiencies in the market and removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system. The Exchange believes that the proposed new risk settings under 
Exchange Rule 2618(a)(2) are consistent with the Act, particularly 
Section 6(b)(5),\28\ because they would foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities and more generally, will protect investors and the public 
interest, by allowing Equity Members and Clearing Members to better 
monitor their risk exposure and by fostering efficiencies in the market 
and removing impediments to and perfect the mechanism of a free and 
open market and a national market system.
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    \28\ 15 U.S.C. 78f(b)(5).
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    In addition, the proposed Gross Notional Open Value and Net 
Notional Open Value risk controls under proposed Exchange Rule 
2618(a)(2)(C) and (D), respectively, are similar to credit controls 
measuring gross and net exposure provided for in Exchange Rules 
2618(a)(1)(A) and (a)(2)(A) and (B). Further, like the Exchange's 
existing credit controls measuring gross and net exposure, the proposed 
risk setting would also be based on a notional execution value. 
Proposed Gross Notional Open Value and Net Notional Open Value risk 
controls under proposed Exchange Rule 2618(a)(2)(C) and (D) are also 
reasonably designed to provide Equity Members and Clearing Members (if 
allocated responsibility pursuant to Exchange Rule 2618(a)(4)) 
additional opportunity to monitor and manage the potential risks of an 
execution that exceeds their certain risk appetite, as well as to 
provide Clearing Members with greater control over their risk tolerance 
and exposure on behalf of their correspondent Equity Members.
Limit Order Price Protection and Trading Collar Changes
    Allowing Equity Members to customize their Limit Order Price 
Protection dollar and percentage thresholds on a per MPID basis, rather 
than only on a per session basis under Exchange Rule 2614(a)(1)(I)(ii) 
provides Equity Members additional flexibility to customize those 
thresholds in a manner consistent with their risk appetite and 
behavior. The proposal promotes just and equitable principles of trade 
because it would allow Equity Members to set their risk thresholds 
comprehensively and across various level settings, including the more 
granular MPID level, if they chose to do so, as well as prevent the 
unnecessary rejection of orders in certain market scenarios.
    The proposal to not apply Limit Order Price Protection and Trading 
Collar when the prior day's Official Closing Price is to be used when 
the PBO, PBB, (for Limit Order Price Protection) and a consolidated 
last sale price are unavailable and a trading halt has been declared by 
the primary listing market during that trading day also promotes just 
and equitable principles of trade because in such a scenario, the 
Exchange believes the Official Closing Price does not appropriately 
relate to the current trading behavior of the security and may result 
in their order being unnecessarily rejected. Equity Members are free to 
not enter orders during such times and enter such orders later when 
Limit Order Price Protection and Trading Collars are in effect.
Replacing ``User'' With ``Equity Member''
    The proposal to amend Exchange Rule 2618 to replace all references 
to the term ``User'' with ``Equity Member'' removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system because it would ensure consistent terminology is used within 
the Rule, thereby avoiding potential investor confusion. This is a non-
substantive change since the risk controls under Exchange Rule 2618 are 
only available to Equity Members and, therefore, this proposed change 
does not alter the operation or application of Exchange Rule 2618.
* * * * *
    Finally, the Exchange believes that the proposed rule change does 
not unfairly discriminate among the Exchange's Members because use of 
the risk settings is optional and are not a prerequisite for 
participation on the Exchange. The proposed risk settings are 
completely voluntary and, as they relate solely to optional risk 
management functionality, no Member is required or under any regulatory 
obligation to utilize them.

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 would allow the Exchange to offer additional risk management 
functionality that is comparable to functionality that has been adopted 
by other national securities exchanges.\29\ Further, by providing 
Equity Members and their Clearing Members additional means to monitor 
and control risk, the proposed rule may increase confidence in the 
proper functioning of the markets and contribute to additional 
competition among trading venues and broker-dealers. Rather than impede 
competition, the proposal is designed to facilitate more robust risk 
management by Equity Members and Clearing Members, which, in turn, 
could enhance the integrity of trading on the securities markets and 
help to assure the stability of the financial system. The proposal 
would impose no burden on intra-market competition because use of the 
proposed risk settings is optional and

[[Page 67086]]

each risk setting is available to all Equity Members equally.
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    \29\ See supra notes 13-15.
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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 \30\ and Rule 19b-4(f)(6) \31\ 
thereunder.
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    \30\ 15 U.S.C. 78s(b)(3)(A).
    \31\ 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 [email protected]. Please include 
File Number SR-PEARL-2022-43 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-2022-43. 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 a.m. and 3 
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 available publicly. All submissions 
should refer to File Number SR-PEARL-2022-43 and should be submitted on 
or before November 28, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24146 Filed 11-4-22; 8:45 am]
BILLING CODE 8011-01-P


