[Federal Register Volume 87, Number 224 (Tuesday, November 22, 2022)]
[Notices]
[Pages 71368-71372]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-25358]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96334; File No. SR-PEARL-2022-48]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 
2614(f), Self-Trade Protection Modifiers

November 16, 2022.
    Pursuant to the provisions of 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 November 7, 2022, MIAX PEARL, LLC (``MIAX 
Pearl'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change as described in 
Items I 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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[[Page 71369]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposed rule change expand the 
availability of the Exchange's existing Self-Trade Protection (``STP'') 
modifiers to more Equity Members \3\ 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

1. Purpose
    The Exchange proposes to amend Exchange Rule 2614(f) to expand the 
availability of the Exchange's existing STP modifiers to more Equity 
Members on MIAX Pearl Equities.\4\ Specifically, the Exchange proposes 
to allow Equity Members to apply STP to orders submitted by an 
Affiliate \5\ that is also an Equity Member (an Equity Member 
Affiliate), if they choose.
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    \4\ The Exchange notes that provisions of Exchange Rule 2614 
that are not subject to this proposed rule change were amended in 
separate filings, but those amendments have not yet been 
implemented. See, e.g., Securities Exchange Act Release Nos. 95679 
(September 6, 2022), 87 FR 55866 (September 12, 2022) (SR-PEARL-
2022-34); and 96205 (November 1, 2022) (SR-PEARL-2022-43).
    \5\ The term ``affiliate'' of or person ``affiliated with'' 
another person means a person who, directly, or indirectly, 
controls, is controlled by, or is under common control with, such 
other person. See Exchange Rule 100. The term ``person'' refers to a 
natural person, corporation, partnership (general or limited), 
limited liability company, association, joint stock company, trust, 
trustee of a trust fund, or any organized group of persons whether 
incorporated or not and a government or agency or political 
subdivision thereof. Id.
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    The Exchange offers optional anti-internalization functionality to 
Users \6\ in the form of STP modifiers that enable a User to prevent 
two of its orders from executing against each other. Currently, Users 
can set the STP modifier to apply at the market participant identifier 
(``MPID''), Exchange Member identifier, or trading group identifier 
(any such existing identifier, a ``Unique Identifier'').\7\ The STP 
modifier on the order with the most recent time stamp controls the 
interaction between two orders marked with STP modifiers. STP 
functionality assists market participants in reducing trading costs 
from unwanted executions potentially resulting from the interaction of 
executable buy and sell trading interest from the same firm.
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    \6\ The term ``User'' means any Member or Sponsored Participant 
who is authorized to obtain access to the System pursuant to 
Exchange Rule 2602. See Exchange Rule 1901.
    \7\ See Exchange Rule 2614(f).
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    The proposed rule change would permit Equity Members to direct that 
orders entered into the System not execute against orders entered 
across MPIDs that are Equity Member Affiliates. The Exchange believes 
that this enhancement will provide helpful flexibility for Equity 
Members that wish to prevent trading against all orders entered by 
market participants that are affiliated with each other, instead of 
just orders that are entered under the same Unique Identifier (as 
currently defined).
    The Exchange offers the following four (4) STP modifiers to Equity 
Members: Cancel Newest, Cancel Oldest, Decrement and Cancel, and Cancel 
Both. An order marked with the Cancel Newest modifier will not execute 
against a contra-side order marked with any STP modifier originating 
from the same Unique Identifier (as currently defined) and the order 
with the most recent time stamp marked with the Cancel Newest modifier 
will be cancelled. The contra-side order with the older timestamp 
marked with an STP modifier will remain on the MIAX Pearl Equities 
Book.\8\ An order marked with the Cancel Oldest modifier will not 
execute against a contra-side order marked with any STP modifier 
originating from the same Unique Identifier and the order with the 
older time stamp marked with the STP modifier will be cancelled. The 
contra-side order with the most recent timestamp marked with the STP 
modifier will remain on the MIAX Pearl Equities Book. An order marked 
with the Decrement and Cancel modifier will not execute against contra-
side interest marked with any STP modifier originating from the same 
Unique Identifier. If both orders are equivalent in size, both orders 
will be cancelled. If both orders are not equivalent in size, the 
equivalent size will be cancelled and the larger order will be 
decremented by the size of the smaller order, with the balance 
remaining on the MIAX Pearl Equities Book. Finally, an order marked 
with the Cancel Both modifier will not execute against contra-side 
interest marked with any STP modifier originating from the same Unique 
Identifier and the entire size of both orders will be cancelled.
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    \8\ Exchange Rule 1901 defines the term ``MIAX Pearl Equities 
Book'' as ``the electronic book of orders in equity securities 
maintained by the System.''
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    The Exchange understands that some Equity Members would like to 
apply STP to orders submitted by their Affiliates who are also Equity 
Members. For example, if Equity Member A is under common control with 
Equity Member B, the two Equity Members would like the option of 
applying STP to orders submitted by the two Equity Member Affiliates. 
Therefore, the Exchange proposes to expand the availability of the 
anti-internalization functionality it offers by allowing STP groups to 
be set at the Equity Member Affiliate level in addition to the current 
options of settings at the MPID, Exchange Member identifier, or trading 
group identifier level. This proposal is designed to offer STP 
functionality to Equity Member Affiliates that have divided their 
business activities between separate corporate entities without 
disadvantaging them when compared to Equity Members that operate those 
business activities within a single corporate entity. This proposal 
would expand the levels at which STP groups can be set by an Equity 
Member, but nothing in this proposal would change the manner in which 
two orders in the same STP group interact.
    Specifically, the Exchange proposes to amend Exchange Rule 2614(f) 
to include ``Equity Member Affiliate'' as one of the possible levels 
for STP groupings (in addition to the current options of MPID, Exchange 
Member identifier, and trading group identifier). The Exchange also 
proposes to amend Exchange Rule 2614(f) to specify that for purposes of 
the rule, the term ``Equity Member Affiliate'' shall mean an Equity 
Member that is affiliated with another Equity Member pursuant to 
Exchange Rule 100.\9\ If Equity Members choose to have STP applied 
across Equity Member Affiliates, the anti-internalization

[[Page 71370]]

functionality would prevent orders from such Equity Member Affiliates 
from trading against one another.
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    \9\ See supra note 5.
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    Assume Equity Member A and Equity Member B satisfy the definition 
of Equity Member Affiliate and instructed the Exchange to prohibit 
their orders that contain STP modifiers from executing against one 
another. Under this proposal, if Equity Member A submits an order to 
buy 100 shares of security ABC for $10.00 with an Equity Member-
supplied STP modifier, and Equity Member B, an Equity Member Affiliate 
of Equity Member A, submits an order to sell 100 shares of security ABC 
for $10.00 also with an Equity Member-supplied STP modifier, the two 
otherwise executable orders will not execute, but will instead interact 
based upon the Equity Member-supplied STP modifier on the newer order.
    An Equity Member must inform the Exchange's Membership Department 
which other Equity Member(s) it is affiliated with and meet the 
definition of Equity Member Affiliate for purposes of using STP. Equity 
Members will be responsible for having proper internal documentation in 
their books and records substantiating that two or more Equity Members 
using STP are Equity Member Affiliates of one another. The Exchange 
notes that it already utilizes this grouping of Equity Member 
Affiliates in its fee schedule so as not to penalize two affiliated 
members when calculating rebate tiers.\10\ The Exchange also notes that 
other equity exchanges recently amended their rules to allow affiliate 
grouping for their own anti-internalization functionality.\11\
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    \10\ See the definition of ADAV in the Exchange's fee schedule 
available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_09012022.pdf 
(dated September 1, 2022).
    \11\ See, e.g., Securities Exchange Act Release Nos. 96187 
(October 31, 2022), 87 FR 6674 (November 4, 2022) (SR-IEX-2022-08) 
(filed for immediate effectiveness on October 24, 2022); 96156 
(October 25, 2022), 87 FR 65633 (October 31, 2022) (SR-BX-2022-020) 
(filed for immediate effectiveness on October 21, 2022); and 96154 
(October 25, 2022), 87 FR 65631 (October 31, 2022) (SR-Phlx-2022-43) 
(filed for immediate effectiveness on October 21, 2022).
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    This proposed rule change is designed to provide additional 
flexibility to Equity Members in how they implement self-trade 
prevention provided by the Exchange, and thereby better manage their 
order flow and prevent undesirable executions or the potential for 
``wash sales'' that may occur as a result of the speed of trading in 
today's marketplace. Based on informal discussions with Equity Members, 
the Exchange believes that the proposed amendments will be useful to 
Equity Members in implementing their own compliance controls. 
Furthermore, the additional STP functionality may assist Members in 
complying with certain rules and regulations of the Employee Retirement 
Income Security Act (``ERISA'') that preclude and/or limit managing 
broker-dealers of such accounts from trading as principal with orders 
generated for those accounts.
    The Exchange notes that, as with the current anti-internalization 
functionality offered by the Exchange, use of the proposed new Equity 
Member Affiliate STP grouping will not alleviate, or otherwise exempt, 
Equity Members from their best execution obligations. As such, Equity 
Members and their Affiliates using STP will continue to be obligated to 
take appropriate steps to ensure customer orders which were prevented 
from execution due to anti-internalization ultimately receive the same 
price, or a better price, than they would have received had execution 
of the orders not been inhibited by anti-internalization. Further, as 
with current rule provisions, Market Makers and other Users may not use 
STP functionality to evade the firm quote obligation, as specified in 
Exchange Rule 2606(b), and the STP functionality must be used in a 
manner consistent with just and equitable principles of trade.\12\ For 
these reasons, the Exchange believes the proposed new Equity Member 
Affiliate level of STP grouping offers Equity Members enhanced order 
processing functionality that may prevent potentially undesirable 
executions without negatively impacting broker-dealer best execution 
obligations.
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    \12\ See Exchange Rule 2100.
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Implementation
    Due to the technological changes associated with this proposed 
change, the Exchange will issue a trading alert publicly announcing the 
implementation date of this proposed rule change to provide Equity 
Members with adequate time to prepare for the associated technological 
changes. 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,\13\ in general, and furthers the objectives of Section 
6(b)(5),\14\ 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. Specifically, the Exchange 
believes that the proposed rule change is consistent with the 
protection of investors and the public interest because allowing Equity 
Member Affiliates to be part of the same STP group will provide Equity 
Members with additional flexibility with respect to how they implement 
self-trade protections provided by the Exchange that may better support 
their trading strategies and compliance controls. Equity Members that 
prefer the current anti-internalization groupings offered by the 
Exchange can continue to use them without any modification (i.e., if 
two Equity Member Affiliates do not wish to have orders from the two 
Equity Members be in the same STP group, the Equity Members will not 
have to make any changes to the manner in which they submit orders to 
the Exchange).
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    As noted in the Purpose section, the Exchange believes that 
providing Equity Members with more flexibility and control over the 
interactions of their orders will better prevent undesirable executions 
or the potential for ``wash sales'' that may occur as a result of the 
speed of trading in today's marketplace. The Equity Member Affiliate 
level STP grouping may better assist Equity Members in complying with 
certain ERISA rules and regulations that preclude and/or limit managing 
broker-dealers of such accounts from trading as principal with orders 
generated for those accounts.
    Additionally, as discussed in the Purpose section, allowing Equity 
Members to apply STP to trades submitted by their Affiliates that are 
also Equity Members is intended to avoid disparate treatment of firms 
that have divided their various business activities between separate 
corporate entities as compared to firms that operate those business 
activities within a single corporate entity. Accordingly, the Exchange 
believes that this proposed rule change is fair and equitable, and not 
unreasonably discriminatory.
    Further, the Exchange believes that providing expanded STP grouping 
options may streamline certain regulatory functions by reducing false 
positive results that may occur on wash trading surveillance reports 
when two orders in the same STP group are

[[Page 71371]]

executed, notwithstanding that the transaction may not constitute a 
wash trade.
    Finally, as discussed in the Purpose section, the Exchange notes 
other equity exchanges recently amended their rules to allow affiliate 
grouping for their own anti-internalization functionality.\15\ 
Consequently, the Exchange does not believe that the proposed rule 
change raises any new or novel issues not already considered by the 
Commission.
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    \15\ See supra note 12 [sic].
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the contrary, the 
proposal is designed to enhance the Exchange's competitiveness by 
providing additional flexibility over the level at which orders are 
grouped, thereby incentivizing Equity Members to send orders to the 
Exchange and increase the liquidity available on the Exchange. 
Additionally, the proposed rule change is designed to assist Equity 
Members with compliance with the securities laws that prohibit wash 
trading as well as ERISA requirements. The Exchange also notes that the 
proposed new STP grouping option, like the Exchange's current anti-
internalization functionality, is completely optional and Equity 
Members can determine on an order-by-order, MPID, Exchange Member 
identifier, trading group identifier, or Equity Member Affiliate 
identifier basis whether to apply anti-internalization protections to 
orders submitted to the Exchange. The proposed rule change would also 
improve the Exchange's ability to compete with other exchanges that 
recently amended their rules to allow affiliate grouping for their own 
anti-internalization functionality.\16\
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    \16\ See id.
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    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Moreover, there 
is no barrier to other national securities exchanges adopting similar 
anti-internalization grouping at the Equity Member Affiliate level.
    The Exchange also does not believe that the proposed rule change 
will impose any burden on intramarket competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. All Equity 
Members will continue to be eligible to use the Exchange's anti-
internalization functionality. While not every Equity Member engages in 
a business that might involve risks of self-matching against an 
Affiliate's orders, for the Equity Members that do face that risk, the 
proposed additional anti-internalization grouping is designed to help 
such Equity Members with their compliance with the securities laws and 
ERISA. Further, implementation of anti-internalization functionality 
impacts only an Equity Member's orders (and the orders of the Equity 
Member Affiliates), and not the orders of other, unaffiliated Equity 
Members. As discussed in the Purpose and Statutory Basis sections, 
allowing Equity Members to apply STP to trades submitted by their 
Affiliates that are also Equity Members is intended to avoid disparate 
treatment of firms that have divided their various business activities 
between separate corporate entities as compared to firms that operate 
those business activities within a single corporate entity.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or 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 if consistent with the 
protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \17\ and Rule 19b-
4(f)(6) \18\ thereunder.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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, along 
with a brief description and text of 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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    A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\20\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative upon filing. The Exchange states that 
waiver of the operative delay would be consistent with the protection 
of investors and the public interest because it would enable the 
Exchange to implement the proposed rule change as soon as possible, 
which would allow Equity Member Affiliates to be part of the same STP 
group during the operative delay period and provide Equity Members with 
additional flexibility in the near term with respect to how they 
implement self-trade protections that may better support their trading 
strategies and compliance controls. The Exchange also states that 
waiver of the operative delay would allow the Exchange to avoid 
disparate treatment during the operative delay period of firms that 
have divided their various business activities between separate 
corporate entities as compared to firms that operate those business 
activities within a single corporate entity. Further, other equity 
exchanges recently amended their rules to allow affiliate grouping for 
their anti-internalization functionalities. For these reasons, and 
because the proposed rule change does not raise any novel regulatory 
issues, the Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing.\21\
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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:

[[Page 71372]]

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-2022-48 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-2022-48. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-PEARL-2022-48 and should be submitted on 
or before December 13, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25358 Filed 11-21-22; 8:45 am]
BILLING CODE 8011-01-P


