[Federal Register Volume 85, Number 230 (Monday, November 30, 2020)]
[Notices]
[Pages 76630-76635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26281]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90478; File No. SR-PEARL-2020-26]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange 
Rule 2618, Risk Settings and Trading Risk Metrics

November 23, 2020.
    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 November 13, 2020, MIAX PEARL, LLC (``MIAX PEARL'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange is filing a proposed rule change to provide Equity 
Members \3\ the Net Notional Trade Value risk setting, an additional 
optional risk setting under Exchange Rule 2618 when trading equity 
securities on the Exchange's equity trading platform (referred to 
herein as ``MIAX PEARL Equities''). The Exchange also proposes to make 
a non-

[[Page 76631]]

substantive technical clarifications to paragraphs (a)(5) and (6) of 
Exchange Rule 2618.
---------------------------------------------------------------------------

    \3\ See Exchange Rule 1901 for the definition of Equity Member.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
PEARL's principal office, and at the Commission's Public Reference 
Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to adopt the ``Net 
Notional Trade Value'' risk setting, which would provide Equity Members 
an additional optional risk setting under Exchange Rule 2618 when 
trading equity securities on MIAX PEARL Equities.\4\ The Exchange also 
proposes to make a non-substantive technical clarifications to 
paragraphs (a)(5) and (6) of Exchange Rule 2618.
---------------------------------------------------------------------------

    \4\ The proposed rule changes are substantially similar to a 
recent rule amendment by Cboe BZX Exchange, Inc. (``BZX'') and Cboe 
EDGX Exchange, Inc. (``EDGX''). See Interpretation and Policy .03 to 
BZX Rule 11.13 and Interpretation and Policy .03 to EDGX Rule 11.10. 
See Securities Exchange Act Nos. 88599 (April 8, 2020) 85 FR 20793 
(April 14, 2020) (the ``BZX Approval''); and 88783 (April 30, 2020), 
85 FR 26991 (May 6, 2020) (the ``EDGX Notice''). See also Securities 
Exchange Act Release Nos. 89032 (June 9, 2020), 85 FR 36246 (June 
15, 2020) (SR-CboeBZX-2020-44); and 89000 (June 3, 2020), 85 FR 
35344 (June 9, 2020) (SR-CboeEDGX-2020-023).
---------------------------------------------------------------------------

Net Notional Risk Setting
    The Exchange recently adopted the Gross Notional Trade Value risk 
setting to help Equity Members manage their risk.\5\ In that proposal, 
the Exchange also proposed to allow an Equity Member that does not 
self-clear the ability to allocate and revoke \6\ the responsibility of 
establishing and adjusting the risk settings identified in proposed 
paragraph (a)(2) of Exchange Rule 2618, which presently only includes 
the Gross Notional Trade Value risk setting, to a Clearing Member \7\ 
that clears transactions on behalf of the Equity Member, if designated 
in a manner prescribed by the Exchange.\8\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 89971 (September 23, 
2020), 85 FR 61053 (September 29, 2020) (SR-PEARL-2020-16).
    \6\ As discussed below, if an Equity Member revokes the 
responsibility of establishing and adjusting the risk settings 
identified in proposed paragraph (a), the settings applied by the 
Equity Member would be applicable.
    \7\ 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: (i) 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 (ii) 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.
    \8\ See supra note 5.
---------------------------------------------------------------------------

    The Exchange now proposes to offer Net Notional Trade Value, an 
additional optional risk setting that would authorize the Exchange to 
take automated action if a designated limit for an Equity Member is 
breached. Like Gross Notional Trade Value, Net Notional Trade Value 
would provide Equity Members with enhanced abilities to manage their 
risk with respect to orders on the Exchange. The Exchange proposes to 
set forth Net Notional Trade Value under paragraph (a)(2) of Rule 2618 
as follows:
    <bullet> The ``Net Notional Trade Value'' which refers to 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 Net 
Notional Trade Value, only executed orders are included.
    Like Gross Notional Trade Value, the proposed Net Notional Trade 
Value risk setting is similar to credit controls measuring net exposure 
provided for in paragraph (a)(1)(A) of Exchange Rule 2618 and allow 
limits to be set at the Market Participant Identifier (``MPID''), 
session, and firm level.\9\ Therefore, the proposed risk management 
functionality would allow an Equity Member to manage its risk more 
comprehensively and across various level settings. Further, like our 
existing credit controls measuring gross exposure, the proposed risk 
setting would also be based on a notional execution value. The Exchange 
notes that the current gross notional control noted in paragraph 
(a)(2)(A) of Exchange Rule 2618 will continue to be available in 
addition to the proposed risk setting.
---------------------------------------------------------------------------

    \9\ One difference between this proposed rule change and those 
of BZX and EDGX is that both BZX and EDGX only allow the net credit 
risk limits to be set at the MPID Level or to a subset of orders 
identified within that MPID (the ``risk group identifier'' level). 
See supra note 4. The Exchange believes allowing for limits to be 
set at the MPID, session, or firm level provides Equity Members 
greater flexibility in managing their risk exposure.
---------------------------------------------------------------------------

    Like for the Gross Notional Trade Value risk setting,\10\ the 
processes set forth under existing paragraphs (a)(3) through (6) of 
Exchange Rule 2618 would also apply to the Net Notional Trade Value 
Risk Setting and are further described below.
---------------------------------------------------------------------------

    \10\ See supra note 5.
---------------------------------------------------------------------------

    Equity Members that do not self-clear may, pursuant to paragraph 
(a)(4) of Exchange Rule 2618, allocate and revoke \11\ the 
responsibility of establishing and adjusting the Net Notional Trade 
Value risk settings to a Clearing Member that clears transactions on 
behalf of the Equity Member in the identical manner as they may do 
today for the Gross Notional Trade Value risk setting.\12\
---------------------------------------------------------------------------

    \11\ As discussed below, if an Equity Member revokes the 
responsibility of establishing and adjusting the risk settings 
identified in proposed paragraph (a), the settings applied by the 
Equity Member would be applicable.
    \12\ See supra note 5.
---------------------------------------------------------------------------

    By way of background and as explained in its proposal to adopt the 
Gross Notional Trade Value risk setting,\13\ Exchange Rule 2620(a) 
requires that all transactions passing through the facilities of the 
Exchange shall be cleared and settled through a Qualified Clearing 
Agency using a continuous net settlement system.\14\ As reflected in 
Exchange Rule 2620(a), this requirement may be satisfied by direct 
participation, use of direct clearing services, or by entry into a 
corresponding clearing arrangement with another Equity Member that 
clears through a Qualified Clearing Agency (i.e., a Clearing Member). 
If an Equity Member clears transactions through another Equity Member 
that is a Clearing Member, such Clearing Member shall affirm to the 
Exchange in writing, through letter of authorization, letter of 
guarantee or other agreement acceptable to the Exchange, its agreement 
to assume responsibility for clearing and settling any and all trades 
executed by the Equity Member

[[Page 76632]]

designating it as its clearing firm.\15\ Thus, while not all Equity 
Members are Clearing Members, all Equity Members are required either to 
clear their own transactions or to have in place a relationship with a 
Clearing Member that has agreed to clear transactions on their behalf 
in order to conduct business on the Exchange. Therefore, the Clearing 
Member that guarantees the Equity Member's transactions on the Exchange 
has a financial interest in the risk settings utilized within the 
System \16\ by the Equity Member.
---------------------------------------------------------------------------

    \13\ Id.
    \14\ The term ``Qualified Clearing Agency'' means a clearing 
agency registered with the Commission pursuant to Section 17A of the 
Act that is deemed qualified by the Exchange. See Exchange Rule 
1901. The rules of any such clearing agency shall govern with the 
respect to the clearance and settlement of any transactions executed 
by the Member on the Exchange.
    \15\ An Equity Member can designate one Clearing Member per MPID 
associated with the Equity Member.
    \16\ See Exchange Rule 100 for a definition of ``System.''
---------------------------------------------------------------------------

    Paragraph (a) of Rule 2620 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 MIAX PEARL 
Equities. Such functionality is designed to help Clearing Members to 
better monitor and manage the potential risks that they assume when 
clearing for Equity Members of the Exchange. Like it does today for the 
Gross Notional Trade Value risk setting, an Equity Member may allocate 
or revoke the responsibility of establishing and adjusting the risk 
settings for the Net Notional Trade Value risk setting 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, as 
discussed in further detail below. Because the Equity Member is 
responsible for its own trading activity, the Exchange will not provide 
a Clearing Member authorization to establish and adjust the Net 
Notional Trade Value risk setting 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. By allocating such 
responsibilities to its Clearing Member, the Equity Member consents to 
the Exchange taking action, as set forth in paragraph (a)(6) of 
Exchange Rule 2618, with respect to the Equity Member's trading 
activity. Specifically, like for the Gross Notional Trade Value risk 
setting, if the Net Notional Trade Value risk settings established by 
the Clearing Member are breached, the Equity Member consents that the 
Exchange will automatically block new orders submitted and cancel open 
orders until such time that the applicable risk setting is adjusted to 
a higher limit by the Clearing Member. An Equity Member may also revoke 
responsibility allocated to its Clearing Member pursuant to (a)(6) of 
Exchange Rule 2618 at any time in a manner prescribed by the Exchange.
    Like for the Gross Notional Trade Value risk setting, paragraph 
(a)(3) Exchange Rule 2618 provides that either an Equity Member or its 
Clearing Member, if allocated such responsibility pursuant to paragraph 
(a)(4) of Exchange Rule 2618, may establish and adjust limits for the 
Net Notional Trade Value risk setting. An Equity Member or Clearing 
Member may establish and adjust limits for the risk setting in a manner 
prescribed by the Exchange. The risk management web portal page will 
also provide a view of all applicable limits for each Equity Member, 
which will be made available to the Equity Member and its Clearing 
Member, as discussed in further detail below.
    Paragraph (a)(5) of Exchange Rule 2618 provides optional alerts to 
signal when an Equity Member is approaching its designated limit. If 
enabled, the alerts would generate when the Equity Member breaches 
certain percentage thresholds of its designated risk limit, including 
the proposed Net Notional Trade Value risk setting, as determined by 
the Exchange. Based on current industry standards, in its proposal to 
adopt the Gross Notional Trade Value risk setting, the Exchange 
initially set these thresholds at seventy-five or ninety percent of the 
designated risk limit.\17\ These thresholds would also apply to the Net 
Notional Trade Value risk setting. Both the Equity Member and Clearing 
Member \18\ would have the option to enable the alerts via the risk 
management tool on the web portal and designate email recipients of the 
notification. The proposed alert system is meant to warn an Equity 
Member and Clearing Member of the Equity Member's trading activity, and 
will have no impact on the Equity Member's order and trade activity if 
a warning percentage is breached. Proposed paragraph (a)(6) of Exchange 
Rule 2618 would authorize the Exchange to automatically block new 
orders submitted and cancel all open orders in the event that a risk 
setting is breached. The Exchange will continue to block new orders 
submitted until the Equity Member or Clearing Member, if allocated such 
responsibility pursuant to proposed paragraph (a)(4) of Exchange Rule 
2618, adjusts the risk settings to a higher threshold. The proposed 
functionality is designed to assist Equity Members and Clearing Members 
in the management of, and risk control over, their credit risk. 
Further, the proposed functionality would allow the Equity Member to 
seamlessly avoid unintended executions that exceed their stated risk 
tolerance.
---------------------------------------------------------------------------

    \17\ See supra note 5.
    \18\ A Clearing Member would have the ability to enable alerts 
regardless of whether it was allocated responsibilities pursuant to 
proposed paragraph (a)(4) of Exchange Rule 2618.
---------------------------------------------------------------------------

    Like it did for the Gross Notional Trade Value risk setting,\19\ 
the Exchange does not guarantee that the proposed Net Notional Trade 
Value risk setting and the processes described in paragraphs (a)(2) 
through (6) are sufficiently comprehensive to meet all of an Equity 
Member's risk management needs. Pursuant to Rule 15c3-5 under the 
Act,\20\ 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.\21\ Use of the 
Exchange's risk settings included in proposed paragraphs (a)(2) through 
(6) of 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.
---------------------------------------------------------------------------

    \19\ See supra note 5.
    \20\ 17 CFR 240.15c3-5.
    \21\ 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.
---------------------------------------------------------------------------

    Lastly, as the Exchange currently has the authority to share any of 
an Equity Member's risk settings specified in paragraph (a) of Exchange 
Rule 2618 under Exchange Rule 2620(f) with the Clearing Member that 
clears transactions on behalf of the Equity Member. Existing Exchange 
Rule 2620(f) provides the Exchange with authority to directly provide 
Clearing Members that clear transactions on behalf of an Equity Member, 
to share any of the Equity Member's risk settings set forth under 
paragraph (a) of Exchange Rule 2618.\22\ The purpose of such a 
provision under Exchange Rule 2620(f) was

[[Page 76633]]

implemented to reduce the administrative burden on participants on MIAX 
PEARL Equities, including both Clearing Members and Equity Members, and 
to ensure that Clearing Members receive information that is up to date 
and conforms to the settings active in the System. Further, the 
provision was adopted because the Exchange believed such functionality 
would help Clearing Members to better monitor and manage the potential 
risks that they assume when clearing for Equity Members of the 
Exchange. Paragraph (f) of Exchange Rule 2620 further authorizes the 
Exchange to share any of an Equity Member's risk settings specified in 
paragraph (a)(2) to Exchange Rule 2618 with the Clearing Member that 
clears transactions on behalf of the Equity Member.
---------------------------------------------------------------------------

    \22\ By using the optional risk settings provided in paragraph 
(a) of Exchange Rule 2618, an Equity Member opts-in to the Exchange 
sharing its risk settings with its Clearing Member. Any Equity 
Member that does not wish to share such risk settings with its 
Clearing Member can avoid sharing such settings by becoming a 
Clearing Member. See, e.g., Securities Exchange Act Release No. 
89563 (August 14, 2020), 85 FR 51510 (August 20, 2020) (SR-PEARL-
2020-03) (``Equities Approval Order'').
---------------------------------------------------------------------------

    The Exchange notes that the use by an Equity Member of the risk 
settings offered by the Exchange is optional. By using these proposed 
optional risk settings, an Equity Member therefore also opts-in to the 
Exchange sharing its designated risk settings with its Clearing Member. 
The Exchange believes that its proposal to offer an additional risk 
setting will allow Equity Members to better manage their credit risk. 
Further, by allowing Equity Members to allocate the responsibility for 
establishing and adjusting such risk settings to its Clearing Member, 
the Exchange believes Clearing Members may reduce potential risks that 
they assume when clearing for Equity Members of the Exchange. The 
Exchange also believes sharing a Member's risk settings set forth under 
paragraph (a)(2) to Exchange Rule 2618, including the proposed Net 
Notional Trade Value risk setting, directly with Clearing Members 
reduces the administrative burden on participants on the Exchange, 
including both Clearing Members and Equity Members, and ensures that 
Clearing Members are receiving information that is up to date and 
conforms to the settings active in the System.
Non-Substantive Clarification
    The Exchange proposes to clarify that paragraphs (a)(5) and (6) of 
Exchange Rule 2618 apply only to the existing Gross Notional Trade 
Value and proposed Net Notional Trade Value risk setting set forth 
under paragraph (a)(2) of Exchange Rule 2618.\23\ This is consistent 
with the rules of other exchanges, but the Exchange believes this 
clarification is necessary due to the different structure of the 
Exchange Rule 2618. The Exchange does not propose to make any other 
changes to paragraphs (a)(5) and (6) of Exchange Rule 2618.
---------------------------------------------------------------------------

    \23\ See, e.g., Interpretation and Policy .03 to EDGX Rule 
11.13.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Net Notional Trade Value
    Specifically, the Exchange believes the proposed amendment will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because it provides additional 
functionality for an Equity Member to manage its credit risk. Like for 
the Gross Notional Trade Value risk setting,\26\ the processes set 
forth under existing paragraphs (a)(3) through (6) of Exchange Rule 
2618 would also apply to the Net Notional Trade Value Risk Setting. In 
addition, the proposed risk setting 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 proposed paragraph (a)(4) of 
Exchange Rule 2618, while also providing an alert system that would 
help to ensure that both Equity Members and its Clearing Member are 
aware of developing issues. As such, the Exchange believes that the 
proposed risk settings would provide a means to address potentially 
market-impacting events, helping to ensure the proper functioning of 
the market.
---------------------------------------------------------------------------

    \26\ See supra note 5.
---------------------------------------------------------------------------

    In addition, the Exchange believes that the proposed rule change is 
designed to protect investors and the public interest because the 
proposed 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.
    Further, the Exchange believes that the proposed rule will foster 
cooperation and coordination with persons facilitating transactions in 
securities because the Exchange will provide alerts when an Equity 
Member's trading activity reaches certain thresholds, which will be 
available to both the Equity Member and Clearing Member. As such, the 
Exchange may help Clearing Members monitor the risk levels of 
correspondent Equity Members and provide tools for Clearing Members, if 
allocated such responsibility, to take action.
    The proposal will permit Clearing Members who have a financial 
interest in the risk settings of Equity Members to better monitor and 
manage the potential risks assumed by Clearing Members, thereby 
providing Clearing Members with greater control and flexibility over 
setting their own risk tolerance and exposure. 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 proposal to share 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 will 
foster efficiencies in the market and remove impediments to and perfect 
the mechanism of a free and open market and a national market system. 
The proposal also ensures that Clearing Members are receiving 
information that is up to date and conforms to the settings active in 
the System. The Exchange believes that the proposal is consistent with 
the Act, particularly Section 6(b)(5),\27\ because it will foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities and more generally, will protect investors 
and the public interest, by allowing 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.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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

[[Page 76634]]

Exchange. The proposed risk settings are completely voluntary and, as 
they relate solely to optional risk management functionality, no Equity 
Member is required or under any regulatory obligation to utilize them.
    Like for the Gross Notional Trade Value risk setting, the processes 
set forth under existing paragraphs (a)(3) through (6) of Exchange Rule 
2618, which were previously filed with the Commission for immediate 
effectiveness, would also apply to the Net Notional Trade Value risk 
setting.\28\ The proposed rule change is also based on Interpretation 
and Policy .03 of EDGX Rule 11.10 and Interpretation and Policy .03 of 
BZX Rule 11.13, with a few minor differences.\29\ First, both BZX and 
EDGX only allow the net credit risk limits to be set at the MPID level 
or to a subset of orders identified within that MPID (the ``risk group 
identifier'' level) while the Exchange proposes to allow the risk 
limits to be set at the MPID, session, and firm level. Second, EDGX 
proposed additional changes to its Rule 11.13(a) to allow their 
clearing members access to its members risk settings. The Exchange does 
not need to include similar changes in this proposal as Exchange Rule 
2620(a) already provides Clearing Members this ability and includes 
text identical to that which EDGX recently adopted.\30\ Also unlike 
EDGX, the Exchange's proposed Net Notional Trade Value and existing 
credit controls measuring net exposure are both based on notional 
execution value. The controls noted in paragraph (h) of Interpretation 
and Policy .03 of the EDGX Rules are applied based on a combination of 
outstanding orders on the EDGX book and notional execution value, while 
their Net Credit Risk Limit is based on notional execution value only, 
as the Exchange proposes herein and currently does so for its Gross 
Notional Trade Value risk setting. The Exchange notes that it proposes 
to generate alerts when the Equity Member breaches certain percentage 
thresholds of its designated risk limit, as determined by the Exchange. 
Based on current industry standards, the Exchange anticipates initially 
setting these thresholds at seventy-five or ninety percent of the 
designated risk limit. The Exchange notes that EDGX stated these 
thresholds would be set at fifty, seventy, or ninety percent. These 
differences also exist in the Exchange's proposal to adopt the Gross 
Notional Trade Value risk setting, which was previously filed for 
immediate effectiveness and published by the Commission.\31\
---------------------------------------------------------------------------

    \28\ See supra note 5.
    \29\ See supra note 4.
    \30\ Id.
    \31\ See supra note 5.
---------------------------------------------------------------------------

Non-Substantive Clarifications
    The Exchange also believes its non-substantive, technical 
clarifications to paragraphs (a)(5) and (6) of Exchange Rule 2618 is 
consistent with Section 6(b)(5) \32\ because they will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system. The proposed clarification to paragraphs 
(a)(5) and (6) of Exchange Rule 2618 that is applies only to the 
existing Gross Notional Trade Value and proposed Net Notional Trade 
Value risk setting set forth under paragraph (a)(2) of Exchange Rule 
2618 \33\ is consistent with the rules of other exchanges, but the 
Exchange believes this clarification is necessary due to the different 
structure of the Exchange Rule 2618. These changes to Exchange Rule 
2618(a)(5) and (6) promote just and equitable principles of trade by 
making the Exchange's rules clearer and easier to understand, thereby 
avoiding potential investor confusion.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78f(b)(5).
    \33\ See, e.g., Interpretation and Policy .03 to EDGX Rule 
11.13.
---------------------------------------------------------------------------

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 risk management 
functionality that is comparable to functionality that has been adopted 
by other national securities exchanges.\34\ 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. Lastly, the 
proposed clarifications to Exchange Rule 2618(a)(5) and (6) simply seek 
to make the Exchange's rules clearer and easier to understand, and, 
therefore, do they impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \34\ Id.
---------------------------------------------------------------------------

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 from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \35\ and Rule 19b-
4(f)(6) thereunder.\36\
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78s(b)(3)(A).
    \36\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
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.
---------------------------------------------------------------------------

    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 change 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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b2c0c7ded79fd1dddfdfd7dcc6c1f2c1d7d19cd5ddc4"><span class="__cf_email__" data-cfemail="cab8bfa6afe7a9a5a7a7afa4beb98ab9afa9e4ada5bc">[email protected]</span></a>. Please include 
File Number SR-PEARL-2020-26 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 76635]]

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-PEARL-2020-26. 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 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-2020-26, and should be submitted 
on or before December 21, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26281 Filed 11-27-20; 8:45 am]
BILLING CODE 8011-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>