Document ID: SEC-2021-0358-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2021-03-15T04:00Z

[Federal Register Volume 86, Number 48 (Monday, March 15, 2021)]
[Notices]
[Pages 14348-14351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05237]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91282; File No. SR-PEARL-2021-05]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange 
Rule 519C, Mass Cancellation of Trading Interest

March 9, 2021.
    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 February 25, 2021, 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, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposed rule change to amend Exchange 
Rule 519C.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-

[[Page 14349]]

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 Rule 519C, Mass Cancellation of 
Trading Interest, to adopt new paragraph (d) titled, Detection of 
Unresponsive System Interface, which will state that a Member \3\ may 
request that the Help Desk \4\ enable the cancel on disconnect feature 
for a FIX session on their behalf. When the System \5\ detects an 
unresponsive FIX Interface \6\ due to a System issue, the System will 
cancel all open orders for that Interface session.
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    \3\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of MIAX PEARL 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See Exchange Rule 100.
    \4\ The term ``Help Desk'' means the Exchange's control room 
consisting of Exchange staff authorized to make certain trading 
determinations on behalf of the Exchange. The Help Desk shall report 
to and be supervised by a senior executive officer of the Exchange. 
See Exchange Rule 100.
    \5\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \6\ The term ``FIX Interface'' means the Financial Information 
Exchange interface used for submitting certain order types (as set 
forth in MIAX PEARL Rule 516) to the MIAX PEARL System. See Exchange 
Rule 100.
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    MIAX PEARL Members may connect to the System using the MEO 
Interface \7\ and/or the FIX Interface. These two connection protocols 
are not mutually exclusive and Members, specifically Market Makers 
(``MMs'') \8\ on the Exchange, primarily use the MEO Interface for 
providing liquidity to the Exchange via their Market Making activities, 
while Electronic Exchange Members (``EEMs'') \9\ primarily use the FIX 
Interface for submitting orders.\10\
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    \7\ The term ``MEO Interface'' means a binary order interface 
used for submitting certain order types (as set forth in MIAX PEARL 
Rule 516) to the MIAX PEARL System. See Exchange Rule 100.
    \8\ The term ``Market Maker'' or ``MM'' means a Member 
registered with the Exchange for the purpose of making markets in 
options contracts traded on the Exchange and that is vested with the 
rights and responsibilities specified in Chapter VI of MIAX PEARL 
Rules. See Exchange Rule 100.
    \9\ The term ``Electronic Exchange Member'' or ``EEM'' means the 
holder of a Trading Permit who is a Member representing as agent 
Public Customer Orders or Non-Customer Orders on the Exchange and 
those non-Market Maker Members conducting proprietary trading. 
Electronic Exchange Members are deemed ``members'' under the 
Exchange Act. See Exchange Rule 100.
    \10\ The term ``order'' means a firm commitment to buy or sell 
option contracts. See Exchange Rule 100.
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    These Interface ports provide the mechanism by which Members 
maintain a connection to the Exchange and through which a Member 
communicates its quotes and/or orders to the System. Market Makers may 
submit quotes \11\ to the Exchange from one or more MEO ports. 
Similarly, Members may submit orders to the Exchange from one or more 
FIX ports.
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    \11\ The term ``quote'' or ``quotation'' means a bid or offer 
entered by a Market Maker as a firm order that updates the Market 
Maker's previous bid or offer, if any. When the term order is used 
in these Rules and a bid or offer is entered by the Market Maker in 
the option series to which such Market Maker is registered, such 
order shall, as applicable, constitute a quote or quotation for 
purposes of these Rules. See Exchange Rule 100.
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MEO Connections
    Members connect to their assigned MEO port using the MIAX Session 
Management Protocol (``SesM''). The SesM protocol uses Heartbeat \12\ 
packets to detect link failures between the Member and the Exchange. 
The SesM protocol requires that the Exchange must send a Heartbeat 
packet anytime more than one (1) second has passed since the Exchange 
last sent any data. Further, the SesM protocol requires that the Member 
must send a Heartbeat packet anytime more than one (1) second has 
passed since the Member last sent any data. If a certain number of 
consecutive Heartbeats are missed,\13\ or if the Member fails to send 
data or Heartbeats within ``xx'' period of time (``Heartbeat 
Interval''), the System will automatically close the connection and 
listen for the Member to establish a new connection.\14\ The default 
Heartbeat Interval setting is determined by the Exchange and configured 
directly into the System.\15\ Any change to these settings is 
communicated to Members accordingly.
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    \12\ A Heartbeat message is a communication which acts as a 
virtual pulse between the Exchange System and the Member's system. 
The Heartbeat message sent by the Member and received by the 
Exchange allows the Exchange to continually monitor its connection 
with the Member.
    \13\ The Exchange notes that the current setting is three (3) 
Heartbeats.
    \14\ See TCP Session Management (SesM), Protocol Specification, 
(8/13/2015), Version 1.1e, available at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_PEARL_TcpSessionMgmt_SesM_v1_1e_0.pdf.
    \15\ The Exchange notes that the current setting is three (3) 
seconds.
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    The Exchange offers Members three different types of MEO port 
connections. A Full Service Port Bulk (``FSPB'') which 
supports all message types and binary bulk order entry, a Full Service 
Port Single (``FSPS'') which supports all MEO input message 
types and binary order entry on a single order by order basis (no bulk 
orders), and a Limited Service Port (``LSP''), which supports all MEO 
input message types, but does not support bulk order entry and only 
supports IOC/ISO order types. All Ports can have ``cancel on 
disconnect'' enabled.
    By default, cancel on disconnect functionality will be triggered 
upon establishing a loss of communication to the Member's last MEO Full 
Service Port connection to a matching engine. When cancel on disconnect 
is triggered, the System will close the session and remove the Member's 
quotes and orders from the Exchange, for the impacted matching engine 
only.\16\ MEO cancel on disconnect functionality is not changing under 
this proposal.
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    \16\ See MIAX Express Orders Binary Orders for Trading Options, 
MEO Interface Specification, (8/12/2020), Version 2.0b, available at 
https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0b.pdf. See also Exchange Rule 
519C(c)(1).
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FIX Connections
    Members connect to their assigned FIX port using the MIAX PEARL FIX 
Orders Interface (``FOI'') which is a flexible interface that uses the 
FIX protocol for both application and session level messages. As per 
the FIX protocol, a connection is established by the Member submitting 
a logon message to the Exchange. This logon message establishes the 
Heartbeat interval that will be used by the session. This value must be 
greater than zero seconds and the same value must be used by both the 
Member and the Exchange.
    Within the logon message a Member can enable ``Auto Cancel on 
Disconnect'' for all orders sent through a session by setting a flag in 
the logon message. This would result in all eligible orders \17\ 
submitted through the

[[Page 14350]]

FIX connection to be canceled upon a loss of communication. 
Alternatively, a Member can identify individual orders on a per order 
basis that are to be considered for Auto Cancel on Disconnect 
treatment.
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    \17\ Good 'Til Cancelled (``GTC'') orders are not eligible for 
Auto Cancel on Disconnect. A GTC Order is an order to buy or sell 
which remains in effect until it is either executed, cancelled or 
the underlying option expires. See Exchange Rule 516(i).
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    Upon missing a single Heartbeat, FOI will send a Test Request 
message \18\ to the Member to check the status of the connection. Upon 
missing a certain number of Heartbeats,\19\ FOI will send a logout 
message and terminate the connection. When FOI detects a disconnection 
for any reason it will trigger the Auto Cancel on Disconnect process, 
whereby, if enabled, FOI will cancel all eligible orders. If Auto 
Cancel on Disconnect is not enabled for the session or for any orders, 
FOI will simply disconnect the FIX session and not cancel any orders. 
Once disconnected, a FIX user would have to commence a new session to 
add, modify, or cancel its orders. After a disconnect, FOI will not 
accept connections from the Member for a pre-configured period of 
time.\20\ This allows the Exchange to cancel orders without the Member 
being able to reconnect and attempt to interact with an order in the 
process of being canceled. Any change to this setting will be 
communicated to Members accordingly.
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    \18\ The test request message is a FIX Protocol message that 
forces a heartbeat from the opposing application. The test request 
message checks sequence numbers or verifies communication line 
status. The opposite application responds to the Test Request with a 
Heartbeat containing the Test Request ID. Financial Information 
Exchange Protocol (FIX), Version 4.2 with errata. May 1, 2001.
    \19\ The Exchange notes that the current setting is two (2) 
Heartbeats.
    \20\ The Exchange notes that the current setting is five (5) 
seconds. See also Exchange Rule 519C(c)(2).
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    The Auto Cancel on Disconnect functionality is designed to react to 
external connection loss scenarios only. Therefore, it does not cancel 
orders in the event of a FOI Interface becoming unresponsive as a 
result of a MIAX PEARL System issue. The execution reports resulting 
from cancels or trades during the period a Member is disconnected can 
be received upon a subsequent reconnection by the Member on the same 
trading day.\21\
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    \21\ See Options Order Management using FIX Protocol, FIX 
Interface Specification, (6/10/2018), Version 1.1, available at 
https://www.miaxoptions.com/sites/default/files/page-files/MIAX_PEARL_FIX_Order_Interface_FOI_v1.1a.pdf.
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    The Exchange now proposes an additional risk protection feature 
designed to cancel orders in the event of a MIAX PEARL System issue 
that causes the FIX Order Interface to become unresponsive. The 
Exchange proposes to allow a Member to request that the Help Desk 
enable the cancel on disconnect feature for FIX sessions on their 
behalf. When the System detects an unresponsive FIX Order Interface due 
to a MIAX PEARL System issue, the System will cancel all open orders, 
including GTC orders, for that specific session. After initially 
requesting that the Help Desk enable the cancel on disconnect feature 
on behalf of the Member, the setting will remain enabled until such 
time as the Member requests that it be disabled.
    While GTC orders by definition are designed to remain on the 
Exchange's Book \22\ until such time as they are executed or canceled, 
some Members have expressed a preference to have any order type, 
including Good 'til Cancelled, removed from the Exchange's Book if the 
Member is unable to interact with their order due to a technical issue. 
Removing a Member's order in the event of a technical issue reduces the 
chance of an undesirable execution occurring and gives the Member 
flexibility and control over their orders.
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    \22\ The term ``Book'' means the electronic book of buy and sell 
orders and quotes maintained by the System. See Exchange Rule 100.
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    Additionally, the Exchange proposes to make a minor non-substantive 
edit to subparagraph (c)(2) to replace the term ``Session'' (with an 
uppercase ``S'') with the term ``session'' (with a lowercase ``s''). 
The term ``FIX Session'' is not a defined term in the Exchange's 
rulebook and is therefore currently erroneously identified as one. This 
proposed change improves the clarity and precision of the Exchange's 
rulebook.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \23\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \24\ in particular, in that 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 mechanisms 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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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
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    The proposed rule will remove impediments to and perfect the 
mechanism of a free and open market and a national market system and 
protect investors and the public interest by providing Members with a 
mechanism by which to remove all open orders in the System in the event 
one of their FIX Order Interfaces becomes unresponsive due to a MIAX 
PEARL System issue.
    Offering this type of order cancellation functionality to Members 
is consistent with the Act because it enables Members to avoid risks 
associated with inadvertent executions in the event the Member is 
unable to interact with its orders on the Exchange. The proposed rule 
change is not unfairly discriminatory among Members, as it is available 
equally to all Members of the Exchange that use the FIX Protocol to 
submit orders to the Exchange.
    The Exchange's proposal is consistent with the Act because it adds 
another risk protection tool for Members to employ that may mitigate 
the risk of potential erroneous or unintended executions associated 
with an unresponsive FIX Order Interface which protects investors and 
the public interest.
    The Exchange believes the proposed change to correct a 
typographical error, promotes just and equitable principles of trade, 
removes impediments to and perfects the mechanism of a free and open 
market and a national market system as it improves the accuracy and 
specificity of the Exchange's Rules. The Exchange believes that the 
proposed change will provide greater clarity to Members and the public 
regarding the Exchange's Rules, and it is in the public interest for 
rules to be accurate and concise so as to eliminate the potential for 
confusion.

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. The Exchange believes the 
proposed rule change will not impose any burden on intra-market 
competition because every Member of the Exchange has the opportunity to 
benefit from the optional functionality described in the proposed rule.
    Offering optional functionality to cancel all open orders, 
including GTC orders, in the System upon detection of an unresponsive 
FOI connection due to a MIAX PEARL System issue, does not create an 
undue burden on intra-market competition as Members may wish to have 
all open orders canceled to reduce the possibility of an undesired 
execution occurring.
    The Exchange does not believe the proposed rule change will impose 
any

[[Page 14351]]

burden on inter-market competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. At least one other option 
exchange similarly offers a variation of cancel functionality to their 
users to protect against unintended or unwanted executions.\25\
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    \25\ See Cboe Exchange Rule 5.34(c)(6) and (7).
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    For the reasons stated, the Exchange does not believe that the 
proposed rule change will impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act.

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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \26\ and Rule 19b-4(f)(6) 
\27\ thereunder.
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    \26\ 15 U.S.C. 78s(b)(3)(A).
    \27\ 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 rule-comments@sec.gov. Please include 
File Number SR-PEARL-2021-05 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-2021-05. 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-2021-05 and should be submitted on 
or before April 5, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05237 Filed 3-12-21; 8:45 am]
BILLING CODE 8011-01-P