Document ID: SEC-2023-0181-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2023-02-17T05:00Z

[Federal Register Volume 88, Number 33 (Friday, February 17, 2023)]
[Notices]
[Pages 10391-10394]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03335]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96905; File No. SR-PEARL-2023-03]

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

February 13, 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 February 3, 2023, MIAX PEARL, LLC (``MIAX Pearl'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 amend Exchange Rule 2618(a)(2) to offer two additional 
optional risk settings to Equity Members, called the Gross Notional 
Open and Trade Value and Net Notional Open and Trade Value.
    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 provide Equity 
Members additional risk settings when trading equity securities on MIAX 
Pearl Equities. To help Equity Members manage their risk, the Exchange 
currently offers risk settings that authorize the Exchange to take 
automated action if a designated limit for an Equity Member is 
breached. Such risk settings provide Equity Members with enhanced 
abilities to manage their risk when trading on the Exchange. The 
Exchange now proposes to amend Exchange Rule 2618(a)(2) to offer two 
additional optional risk settings to Equity Members, called the Gross 
Notional Open and Trade Value and Net Notional Open and Trade Value. 
Each of these new risk settings seeks to combine certain existing risk 
settings into a single risk setting and are described below.
    Exchange Rule 2618(a)(2) sets forth the specific cumulative risk 
settings the Exchange offers and include Gross Notional Trade Value, 
Net Notional Trade Value, Gross Notional Open Value, and Net Notional 
Open Value.\3\ 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.
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    \3\ See Securities Exchange Act Release Nos. 89971 (September 
23, 2020), 85 FR 61053 (September 29, 2022 [sic]) (SR-PEARL-2020-
16); 90478 (November 23, 2022 [sic]), 85 FR 76630 (November 30, 
2020) (SR-PEARL-2020-26); and 96205 (November 1, 2022), 87 FR 67080 
(November 17 [sic], 2022) (SR-PEARL-2022-43).
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    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. 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 only includes Limit Orders 
and Pegged Orders resting on the MIAX Pearl Equities Book and Limit 
Orders that have been routed to an away exchange for execution.\4\ 
Limit Orders and Pegged Orders are included at their limit price. 
Market Orders are not included.\5\ Each of the above risk settings is 
completely optional and is not applied where the

[[Page 10392]]

Equity Member does not set the applicable threshold.
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    \4\ Pegged Orders are not eligible for routing pursuant to 
Exchange Rule 2617(b). See Exchange Rule 2614(a)(3)(E).
    \5\ See Securities Exchange Act Release No. 96205 (November 1, 
2022), 87 FR 67080 (November 17 [sic], 2022) (SR-PEARL-2022-43).
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    Based on Equity Member demand, the Exchange proposes to adopt the 
following two additional cumulative risk settings that take into 
account both trades, as well as open, unexecuted orders, Gross Notional 
Open and Trade Value and Net Notional Open and Trade Value. The 
proposed risk settings combine each of the above two gross calculated 
risk settings into a single risk control and the two net calculated 
risk settings also into a single risk setting. Specifically, the Gross 
Notional Open and Trade Value would be a combination of the Gross 
Notional Open Value and Gross Notional Trade Value risk settings and 
include both purchases and sales as well as open buy and sell orders 
across all symbols. Like the existing gross calculated risk settings, 
purchases, sales, open orders to buy, and open orders to sell would be 
counted as positive values and a combination of executed and unexecuted 
orders would be included. Meanwhile, the Net Notional Open and Trade 
Value would be a combination of the Net Notional Open Value and Net 
Notional Trade Value risk settings and also include purchases and sales 
as well as open buy and sell orders across all symbols. Like the 
existing net calculated risk settings, where purchases and open orders 
to buy would be counted as positive values and sales and open orders to 
sell would be counted as negative values and, like above for the Gross 
Notional Open and Trade Value risk control, both executed and 
unexecuted orders would be included.
    Each of these above proposed risk settings would be codified under 
Exchange Rule 2618(a)(2). Proposed Exchange Rule 2618(a)(2)(E) would 
provide that the ``Gross Notional Open and Trade Value'' is a pre-
established maximum daily dollar amount for purchases and sales, as 
well as open buy and sell orders across all symbols, where purchases, 
sales, open orders to buy, and open orders to sell are counted as 
positive values. Proposed Exchange Rule 2618(a)(2)(E) would further 
provide that for purposes of calculating the Gross Notional Open and 
Trade Value, executed and unexecuted orders would be included. Proposed 
Exchange Rule 2618(a)(2)(F) would provide that the ``Net Notional Open 
and Trade Value'' would be a pre-established maximum daily dollar 
amount for purchases and sales, as well as open buy and sell orders 
across all symbols, where purchases and open orders to buy are counted 
as positive values, and sales and open orders to sell are counted as 
negative values. Proposed Exchange Rule 2618(a)(2)(F) would further 
provide that for purposes of calculating the Net Notional Open and 
Trade Value, executed and unexecuted orders would be included.
    Like for both the Gross Notional Open Value and Net Notional Open 
Value risk settings, the open orders calculation portion of both the 
proposed Gross Notional Open and Trade Value and Net Notional Open and 
Trade Value risk settings would only include Limit Orders and Pegged 
Orders resting on the MIAX Pearl Equities Book and Limit Orders that 
have been routed to an away exchange for execution.\6\ Limit Orders and 
Pegged Orders would be included at their limit price. Market Orders 
would not be included. Like the existing risk settings set for in 
Exchange Rule 2618(a)(2), each of the proposed risk settings would be 
completely optional and would not be applied where the Equity Member 
does not set the applicable threshold.
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    \6\ See Securities Exchange Act Release No. 96205 (November 1, 
2022), 87 FR 67080 (November 17 [sic], 2022) (SR-PEARL-2022-43).
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    Exchange Rule 2618(a)(4) provides that an Equity Member that does 
not self-clear may allocate and revoke \7\ the responsibility of 
establishing and adjusting the Gross Notional Trade Value, Net Notional 
Trade Value, Gross Notional Open Value, and Net Notional Open Value 
risk settings to a Clearing Member \8\ 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 and Trade Value and Net Notional Open and Trade 
Value risk settings.
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    \7\ 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.
    \8\ 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). The proposed new risk settings 
would be incorporated into the Exchange's online portal.
* * * * *
    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,\9\ 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.\10\ 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

[[Page 10393]]

Exchange and SEC rules remains with the Equity Member.
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    \9\ 17 CFR 240.15c3-5.
    \10\ 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 settings 
set forth herein. The Exchange anticipates that the implementation date 
will be in the second or third quarter of 2023.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\11\ in general, and furthers the objectives of Section 
6(b)(5),\12\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes the proposed risk settings 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 the proposed risk settings are entirely optional. The 
Exchange believes that the proposed risk settings under Exchange Rule 
2618(a)(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.
    The proposed Gross Notional Open and Trade Value and Net Notional 
Open and Trade Value risk settings 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),\13\ 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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    \13\ 15 U.S.C. 78f(b)(5).
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    In addition, the proposed Gross Notional Open and Trade Value and 
Net Notional Open and Trade Value risk settings under proposed Exchange 
Rule 2618(a)(2)(E) and (F), respectively, are similar to the existing 
net and gross calculated controls under Exchange Rules 2618(a)(2)(A), 
(B), (C), and (D) and simply seeks to combine the features of each 
existing gross and net calculated risk settings into a single risk 
setting as described above. Proposed Gross Notional Open Value and Net 
Notional Open Value risk settings under proposed Exchange Rule 
2618(a)(2)(E) and (F) 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.
* * * * *
    Finally, the Exchange believes that the proposed risk settings do 
not unfairly discriminate among the Exchange's Equity Members because 
use of the risk settings is optional and are not a prerequisite for 
participation on MIAX Pearl Equities. 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.

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 provide Equity Members and their Clearing Members 
additional means to monitor and control risk, thereby potentially 
increasing 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 each risk 
setting is available to all Equity Members equally.

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 10394]]

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 \14\ and Rule 19b-4(f)(6) \15\ 
thereunder.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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-2023-03 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-2023-03. 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-2023-03 and should be submitted on 
or before March 10, 2023.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03335 Filed 2-16-23; 8:45 am]
BILLING CODE 8011-01-P