[Federal Register Volume 88, Number 171 (Wednesday, September 6, 2023)]
[Notices]
[Pages 60999-61001]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-19126]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98252; File No. SR-PEARL-2023-39]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange 
Rule 2614 of the MIAX Pearl Equities Rulebook

August 30, 2023.
    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 August 25, 2023, MIAX PEARL, LLC (``MIAX Pearl'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. 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 proposes to amend the description of Limit Orders 
under Exchange Rule 2614(a)(1) to provide optional functionality that 
would cancel displayed Limit Orders \3\ on the Exchange's equity 
trading platform (referred to herein as ``MIAX Pearl Equities'') that 
do not establish a new National Best Bid or Offer (``NBBO''), as 
described below.
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    \3\ See Exchange Rule 2614(a)(1) for a description of Limit 
Orders.
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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 the description of Limit Orders 
under Exchange Rule 2614(a)(1) to provide optional functionality that 
cancel a displayed Limit Order to buy (sell) on MIAX Pearl Equities 
that does not establish a new NBB (NBO), as described herein. The 
Exchange intends to begin to notify Users \4\ whether their displayed 
Limit Order established a new NBBO upon entry or when modified via a 
Cancel/Replace message and such modification causes the order to lose 
time priority.\5\ This functionality is related to a separate proposal 
to adopt a fee program to be known as NBBO Setter Plus on September 1, 
2023 that would provide an enhanced rebate to those displayed Limit 
Orders that establish the NBBO.\6\ Users that are notified that their 
displayed Limit Order or modification of such order did not establish a 
new NBBO may then submit a new displayed Limit Order in an attempt to 
then establish a new NBBO and qualify for the upcoming NBBO Setter Plus 
program.
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    \4\ 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.
    \5\ The Exchange intends to implement this proposed rule change 
and begin to notify Users whether their displayed Limit Order 
established a new NBBO upon entry or when modified via a Cancel/
Replace message on August 31, 2023 (if waiver of the operative delay 
is granted) or on the effective date of this filing. See, e.g., MIAX 
Pearl Equities--Updated Interface Specifications Published for 
Future Enhancements--New NBBO Setter Flag and Cancellation Feature 
if Order is Not Setting the NBBO, dated July 26, 2023, available at 
https://www.miaxglobal.com/alert/2023/07/26/miax-pearl-equities-updated-interface-specifications-published-future, and MIAX Pearl 
Equities--Previously Announced New NBBO Setter Flag and Cancellation 
Feature will be available on Thursday, August 31, 2023; 
Corresponding Updated Risk Protections Guide and Order Type 
Combinations Guide Now on website, dated August 11, 2023, available 
at https://www.miaxglobal.com/alert/2023/08/11/miax-pearl-equities-previously-announced-new-nbbo-setter-flag-and. This functionality is 
limited to displayed Limit Orders because that is the only order 
type offered by the Exchange that may establish a new NBBO.
    \6\ The Exchange intends to submit a separate filing with the 
Commission for immediate effectiveness pursuant to section 19(b)(1) 
of the Exchange Act and Rule 19b-4(f)(2) thereunder a proposal to 
establish the NBBO Setter Plus Program. The Exchange notes that 
other exchanges have adopted similar programs. See Securities 
Exchange Act Release Nos. 95124 (June 17, 2022) 87 FR 37894 (June 
24, 2022) (SR-CboeBZX-2022-034); 14923 (March 10, 2022) 87 FR 14923 
(March 16, 2022) (SR-MEMX-2022-01); 68209 (November 9, 2012) 77 FR 
69519 (November 19, 2012) (SR-NASDAQ-2012-126); and 89754 (September 
2, 2020), 85 FR 55550 (September 8, 2020) (SR-NYSE-2020-71).
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    In connection with the above initiatives, Users requested the 
ability to instruct the Exchange to cancel their displayed Limit Order 
where it does not establish a new NBBO. Therefore, the Exchange 
proposes to allow Users to instruct the Exchange, on an order-by-order 
basis, to cancel their displayed Limit Order to buy (sell) when that 
order does not establish a new NBB (NBO) upon entry or when modified 
via a Cancel/Replace message in accordance with Exchange Rule 2614(e) 
and such modification results in the order losing time priority in 
accordance with Exchange Rule 2616(a)(5). The proposed functionality 
would be set forth under Exchange Rule 2614(a)(1)(J). For the avoidance 
of doubt, the default behavior would be for the Exchange to not cancel 
the order under this proposal, unless otherwise instructed to do so 
upon entry on an order-by-order basis.
    The following example illustrates the proposed functionality upon 
entry. Assume the NBBO is $10.00 by $10.05. A User submits a displayed 
Limit Order to buy with a limit price of $10.01 and instructs the 
Exchange to cancel such order should it not establish a new NBB. The 
order does establish a new NBB upon entry and is posted to the MIAX 
Pearl Equities Book,\7\ resulting in a new NBBO of $10.01 by $10.05. 
However, such order would have been cancelled by the Exchange if its 
limit price was $10.00 or lower.
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    \7\ The term ``MIAX Pearl Equities Book'' means the electronic 
book of orders in equity securities maintained by the System. See 
Exchange Rule 1901.
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    The Exchange also proposes to allow Users to instruct the Exchange 
to cancel a displayed Limit Order when that order does not establish a 
new NBB (NBO) after being modified via a Cancel/Replace message in 
accordance with Exchange Rule 2614(e) and such modification results in 
the order losing time priority in accordance with Exchange Rule 
2616(a)(5). In sum, Exchange Rule 2614(e) provides that

[[Page 61000]]

only the price, sell long, sell short, or short exempt indicator, and 
size terms of the order may be changed by a Cancel/Replace Message. 
Exchange Rule 2616(a)(5) provides that in the event an order has been 
modified via a Cancel/Replace message in accordance with Exchange Rule 
2614(e) above, such order only retains its timestamp if such 
modification involves a decrease in the size of the order, a change to 
the Max Floor of an order with a Reserve Quantity, or when a Short Sale 
Period, as defined in Exchange Rule 2614(g)(3)(A), is not in effect, a 
change in position from (A) sell to sell short; (B) sell to sell short 
exempt; (C) sell short to sell; (D) sell short to sell short exempt; 
(E) sell short exempt to sell; and (F) sell short exempt to sell 
short.\8\ Any other modification to an order, including an increase in 
the size of the order and/or price change, will result in such order 
losing time priority as compared to other orders in the MIAX Pearl 
Equities Book and the timestamp for such order being revised to reflect 
the time of the modification.
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    \8\ See, e.g., Securities Exchange Act Release No. 93506 
(November 2, 2021), 86 FR 61796 (November 8, 2021) (SR-PEARL-2021-
35).
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    The following illustrates how the order from the above example 
would be handled if later modified via a Cancel/Replace message that 
results in a loss in time priority. As illustrated in the above 
example, the displayed Limit Order to buy established a new NBBO of 
$10.01 by $10.05 upon entry and now continues to rest on the MIAX Pearl 
Equities Book at $10.01. Assume the away BBO is $10.00 by $10.05 and a 
User submit a Cancel/Replace message to change the order's limit price 
to $9.99. This would result in the away BBO of $10.00 by $10.05 
becoming the new NBBO. The displayed Limit Order resting on the MIAX 
Pearl Equities Book would, therefore, be cancelled because its price is 
inferior to the new NBB of $10.00 and would no longer set the NBB.\9\
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    \9\ However, such order would not have been cancelled by the 
Exchange if its new limit price was $10.02.
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    Users would need to instruct the Exchange upon entry on an order-
by-order basis to cancel their order as proposed herein. The proposed 
functionality would be entirely optional and, absent an instruction 
from the User on entry to the contrary, a displayed Limit Order that 
does not establish a new NBBO as described above would not be cancelled 
by the Exchange. Users may choose to use the proposed functionality 
based on their own business needs and trading behavior.
    All Users would be notified that their displayed Limit Order or 
modification to such order did not establish a new NBBO, regardless of 
whether a User instructs the Exchange to cancel a displayed Limit Order 
when it does not establish a new NBBO as described herein. Users that 
do not inform the Exchange upon entry to cancel such order may choose 
to cancel that order on their own and submit a new order in an attempt 
to then establish a new NBBO and qualify for the upcoming NBBO Setter 
Plus program.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of section 6(b) of the Act.\10\ Specifically, the 
proposal is consistent with section 6(b)(5) of the Act \11\ because it 
would promote just and equitable principles of trade, remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system, and, in general, protect investors and 
the public interest because it would provide Users optional 
functionality to assist them in managing their order flow and attempts 
to establish a new NBBO. The proposal further remove impediments to, 
and perfect the mechanism of, a free and open market and a national 
market system because Users may instruct the Exchange upon entry to 
cancel their displayed Limit Order or modification to such order that 
did not establish a new NBBO so that they may then submit a new order 
to again attempt to establish a new NBBO and qualify for the upcoming 
NBBO Setter Plus program. The proposal would also promote just and 
equitable principles of trade because it would facilitate a User's 
ability to enter orders that establish a new NBBO by enabling them to 
enter a new order in a timelier manner and not submit a separate 
cancellation message prior to entering the new order. The proposed 
optional functionality should encourage more aggressively priced 
displayed liquidity on the Exchange, thereby, improving price discovery 
and potentially attracting additional contra-side order flow.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    As stated above, the proposed functionality would be entirely 
optional and, absent an instruction from the User to the contrary, a 
displayed Limit Order that does not establish a new NBBO as described 
above would not be cancelled by the Exchange. Users may choose to not 
use the proposed functionality and make their own decision whether to 
cancel the order on their own based on their business needs and trading 
behavior.
    Lastly, the exchange notes that at least one other exchange that 
currently offers a similar NBBO Setter Plus program also provides for 
the ability to instruct the exchange to cancel an order if it does not 
establish the NBBO.\12\
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    \12\ See reason code 240 on page 110 of the NYSE Pillar Gateway 
Binary Protocol Specifications, dated June 27, 2023, available at 
NYSE_Pillar_Gateway_Binary_Protocol_Specification.pdf. See also 
Securities Exchange Act Release No. 89754 (September 2, 2020), 85 FR 
55550 (September 8, 2020) (SR-NYSE-2020-71). Functionality to cancel 
the order if it does not set the NBBO was not included in SR-NYSE-
2020-71.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
proposed rule change would not have any impact on intramarket 
competition because it would be available to all Users and Users may 
choose to use the proposed functionality based on their own business 
needs or trading behavior. The proposal may enhance intermarket 
competition because it would allow the Exchange to better compete with 
at least one other exchange that currently offers the ability to 
instruct the exchange to cancel an order if it does not establish the 
NBBO as part of its own NBBO Setter Plus program.\13\ The proposal may 
also improve the Exchange's competitive position by encouraging the 
entry of displayed orders priced more aggressively than the NBBO, 
improving the Exchange's market quality, and attracting additional 
liquidity. The proposal responds to the current competitive environment 
where order flow providers have a choice of where to direct liquidity-
providing orders by providing optional functionality to facilitate the 
entry of aggressively priced displayed liquidity on the Exchange.
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    \13\ Id.
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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.

[[Page 61001]]

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)(iii) of the Act \14\ and Rule 
19b-4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange 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) \16\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \17\ permits the Commission to 
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 proposal 
may become operative immediately upon filing. The Exchange states that 
this proposal provides Users optional functionality to manage their 
order flow and is designed to facilitate their ability to enter 
aggressively priced displayed Limit Orders that establish a new NBBO. 
The Exchange represents that a waiver of the operative delay would 
permit the Exchange to offer the proposed cancellation and connected 
NBBO notification functionality by September 1, 2023, the date that it 
intends to begin to offer an NBBO Setter Plus program and allow it to 
better compete with other exchanges that offer similar programs and 
functionality. The Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because the proposed functionality is optional and 
could encourage more aggressively priced displayed liquidity on the 
Exchange. Accordingly, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change as operative 
upon filling.\18\
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    \16\ Id.
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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:

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2c5e594049014f4341414942585f6c5f494f024b435a"><span class="__cf_email__" data-cfemail="c2b0b7aea7efa1adafafa7acb6b182b1a7a1eca5adb4">[email protected]</span></a>. Please include 
file number SR-PEARL-2023-39 on the subject line.

Paper Comments

    <bullet> 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-2023-39. 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 (https://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 the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-PEARL-2023-39 and should be 
submitted on or before September 27, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-19126 Filed 9-5-23; 8:45 am]
BILLING CODE 8011-01-P


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