Document ID: SEC-2020-1951-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2020-12-09T05:00Z

[Federal Register Volume 85, Number 237 (Wednesday, December 9, 2020)]
[Notices]
[Pages 79252-79256]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26995]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90563; File No. SR-PEARL-2020-30]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
of a Proposed Rule Change To Amend the Exchange's By-Laws in Connection 
With an Equity Rights Program

December 3, 2020.
    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on November 24, 2020, 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 proposal to amend the Exchange's By-Laws.
    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.

[[Page 79253]]

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 certain sections of its By-Laws to: 
(i) Correspond with an Equity Rights Program (``ERP'') recently 
established by the Exchange; \3\ and (ii) make non-substantive changes 
to the current By-Laws.
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    \3\ See Securities Exchange Act Release No. 89730 (September 1, 
2020), 85 FR 55530 (September 8, 2020) (SR-PEARL-2020-10) (``ERP 
Notice''). This filing is also based on a past filing by the 
Exchange's affiliate, Miami International Securities Exchange, LLC 
(``MIAX''). See Securities Exchange Act Release Nos. 71541 (February 
12, 2014), 79 FR 9572 (February 19, 2014) (SR-MIAX-2013-58) (Notice 
of Filing of Amendment No. 1 and Order Granting Accelerated Approval 
of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, 
To Amend the Exchange's ByLaws); and 77876 (May 20, 2016), 81 FR 
33283 (May 25, 2016) (SR-MIAX-2016-08) (collectively, the ``MIAX 
Approval Orders'').
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    On August 14, 2020, the Commission approved a proposed rule change 
to adopt rules governing the trading of equity securities on the 
Exchange (the platform for the trading of equity securities is referred 
to herein as ``MIAX PEARL Equities'').\4\ This filing corresponds with 
the recently implemented ERP pursuant to which units representing the 
right to acquire equity in the Exchange's parent holding company, Miami 
International Holdings, Inc., were issued to participating Members \5\ 
in exchange for the prepayment of certain ERP Exchange Fees \6\ for 
trading equity securities on MIAX PEARL Equities and the achievement of 
certain liquidity volume thresholds on MIAX PEARL Equities over a 42-
month period. This filing amends the By-Laws to the extent necessary to 
incorporate rights to participating Members in an ERP to appoint 
representation to the MIAX PEARL Board.
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    \4\ See Securities Exchange Act Release Nos. 88132 (February 6, 
2020), 85 FR 8053 (February 12, 2020) (SR-PEARL-2020-03) (Notice of 
Filing of a Proposed Rule Change to Adopt Rules Governing the 
Trading of Equity Securities); and 89563 (August 14, 2020), 85 FR 
51510 (August 20, 2020) (Order Approving Proposed Rule Change to 
Adopt Rules Governing the Trading of Equity Securities).
    \5\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of the 
Exchange's 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.
    \6\ The ERP Exchange fees under the Program consist of: (a) 
Transaction fees as set forth in Section (1)a of the MIAX PEARL 
Options Fee Schedule; (b) membership fees as set forth in Section 3 
of the MIAX PEARL Options Fee Schedule; (c) system connectivity fees 
as set forth in Section 5 of the MIAX PEARL Options Fee Schedule; 
(d) market data fees as set forth in Section 6 of the MIAX PEARL 
Options Fee Schedule; (a) transaction fees as set forth under 
Section (1)a of the MIAX PEARL Equities Fee Schedule; (b) system 
connectivity fees as set forth under Section (2) of the MIAX PEARL 
Equities Fee Schedule; and (c) market data fees as set forth under 
Section (3) of the MIAX PEARL Equities Fee Schedule (collectively, 
the ``ERP Exchange Fees''). The Exchange notes that proprietary 
real-time market data will be provided free of charge for a period 
of time.
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Article I, Definitions
    The Exchange proposes to amend the By-Laws to provide definitions 
for key terms used to incorporate provisions related to the ERP. 
Specifically, the Exchange proposes the following definitions:
     ``ERP Agreement'' means the agreement between the 
Exchange's parent holding company, Miami International Holdings, Inc., 
and ERP Members dated September 11, 2020 pursuant to which Units were 
issued.
     ``ERP Director'' means a MIAX PEARL Equities Industry 
Director who has been nominated by an ERP Member and appointed to the 
Board of Directors.
     ``ERP Member'' means an Exchange Member who acquired Units 
pursuant to an ERP Agreement sufficient to acquire an ERP Director or 
an Observer position.
     ``Measurement Period'' means the time period over which 
Units are vested.
     ``MIAX PEARL Equities'' means the market of the Exchange 
on which equity securities are traded.
     ``Observer'' has the meaning set forth in Article II, 
Section 2.2 of the By-Laws.
     ``Performance Criteria'' means the trades on MIAX PEARL 
Equities in an amount equal to a percentage of the average daily volume 
for National Market System securities on MIAX PEARL Equities as 
reported by the Consolidated Tape Association (CTA) and Unlisted Traded 
Privileges (UTP) Plans, or any successor plans, for a specified 
Measurement Period in an amount such that the ERP Member earns Units 
during such specified Measurement Period and as more fully set forth in 
the ERP Agreement.
     ``Unit'' means the securities issued pursuant to the ERP 
Agreement.
    The Exchange also proposes to delete the definition of the term 
``Exchange Contract'' from the By-Laws because it is no longer used. 
The term ``Exchange Contract'' is currently defined as ``a contract 
that is then listed for trading by the Exchange or that is contemplated 
by the then current business plan of the Company to be listed for 
trading by the Exchange within ninety (90) days following such date.''
    The Exchange proposes to renumber the existing definitions 
accordingly to accommodate the proposed additions and deletions.
Article II, Section 2.2, Composition of the Board
    The Exchange proposed to amend the title of Article II, Section 2.2 
to include reference to Observer Rights. The Exchange also proposes to 
amend Article II, Section 2.2(b)(i) to provide that ERP Directors will 
be included in the number of Industry Directors for purposes of 
calculating the composition of the Board. In addition, the Exchange 
proposes to amend Article II, Section 2.2 (b)(ii) to specify that 
Member Representative Directors will not include ERP Directors for 
purposes of calculating the Board composition.
    In addition, the Exchange proposes to amend Article II, Section 
2.2(e) to replace the existing text with text that provides that an ERP 
Member has a right to nominate one (1) ERP Director or appoint an 
Observer to the Board of Directors. If at any time such ERP Member is 
otherwise able to nominate an ERP Director, but is unable to fill such 
position as a result of such ERP Member already having a representative 
on the Board, such ERP Member will have the right to nominate such 
Director in accordance with amended Article II, Section 2.2(e) upon the 
resignation or removal of such Director already serving on the 
Board.\7\ The nominee shall be appointed at the first annual meeting of 
the Company following the effective date of the By-Law amendment.
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    \7\ At this time, an ERP Member that is represented by a Member 
Representative Director may also have an Observer. But, an ERP 
Member that is represented by an ERP Director may not also have an 
Observer.
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    The Exchange proposes to adopt paragraph (f) under Article II, 
Section 2.2. to provide that if an ERP Director position needs to be 
added pursuant to amended Article II, Section 2.2(e), such ERP Director 
shall be nominated by the

[[Page 79254]]

applicable ERP Member and elected by the LLC Member and additional 
Director positions shall be added and filled at the same time as the 
election of the new ERP Director, as required to comply with the 
requirements set forth in Article II, Section 2.2(a) and (b).
    The Exchange also proposes to adopt paragraph (g) under Article II, 
Section 2.2 to provide that, per amended Article II, Section 2.2(e), a 
person may be invited to attend meetings of the Board in a nonvoting 
Observer capacity as follows. Proposed Article II, Section 2.2(g)(i) 
would provide that any ERP Member that is not otherwise represented on 
the Board shall have the right to appoint one individual as an 
Observer. If the ERP Member is otherwise able to nominate an ERP 
Director, an Observer appointment would be in lieu of such ERP Director 
nomination. Proposed Article II, Section 2.2(g)(ii) would provide that 
the ERP Member's right to appoint an Observer pursuant to proposed 
Section 2.2(g) shall be perpetual, subject to the provisions of Section 
2.3 discussed below. An Observer may not be subject to a statutory 
disqualification.
    Lastly, proposed Article II, Section 2.2(g)(iii) would provide that 
Observers will have the right to attend all meetings of the Board of 
Directors in a nonvoting observer capacity and, in this respect, the 
Company shall give such representative copies of all notices, minutes, 
consents, and other materials that it provides to its directors at the 
same time and in the same manner as provided to such Directors; 
provided, however, that such representative shall agree to hold in 
confidence and trust and to act in a fiduciary manner with respect to 
all information so provided; and provided further, that the Company 
reserves the right to withhold any information and to exclude such 
representative from any meeting or portion thereof if access to such 
information or attendance at such meeting could adversely affect the 
attorney-client privilege between the Company and its counsel or result 
in disclosure of trade secrets or a conflict of interest.
    The Exchange believes these changes are reasonably designed to 
ensure that the Board of Directors maintains the appropriate 
composition after the ERP and that Directors and Observers are 
qualified to represent ERP Members on the Board. The changes will also 
help to ensure that Directors, ERP Directors, and Observers, are 
qualified and held to the same restrictions against statutory 
disqualification. The Exchange notes that no substantive changes are 
being proposed to the Board's composition; the Board size will 
increase, but the current composition will remain.
    Lastly, the Exchange proposes to amend the title of Article II, 
Section 2.2 to refer to Observer Rights and reflect the above-proposed 
changes.
Article II, Section 2.3, Terms of Office
    The Exchange proposes to amend Article II, Section 2.3(b) to 
specify that it does not apply to ERP Directors. The Exchange also 
proposes to adopt paragraph (c) under Article II, Section 2.3 to 
provide that in the event that an ERP Member (either by itself or its 
affiliates) who has the right to nominate an ERP Director and which 
fails to meet its Performance Criteria under the ERP Agreement for 
three consecutive Measurement Periods such that it only meets the 
required performance criteria of an ERP Member that may appoint an 
Observer, then the individual designated by the non-performing ERP 
Member shall immediately cease to be an ERP Director of the Company and 
such ERP Member shall cease to have the right to nominate an ERP 
Director. Such non-performing ERP Member shall continue to maintain 
Observer rights as set forth in the By-Laws. Notwithstanding the 
foregoing, in the event that the non-performing ERP Member satisfies 
the Performance Criteria for a subsequent Measurement Period, then such 
ERP Member may reappoint an ERP Director at the immediately following 
annual meeting of the Company. The Exchange believes that it is fair 
and reasonable to treat non-performing ERP Member's that can nominate 
an ERP Director differently than non-performing ERP Member's that can 
only appoint Observers. ERP Members that can nominate ERP Directors 
have assumed greater performance obligations under the ERP Agreement, 
and thus even at the non-performing level are entitled to more 
protections to their representation on the Board than non-performing 
ERP Members that can only appoint Observers.
    The Exchange also proposes to adopt paragraph (d) under Article II, 
Section 2.3 to provide that an individual ERP Director or Observer 
position shall be immediately terminated following the transfer of 
common stock or warrants of the LLC Member acquired pursuant to the ERP 
Agreement by an ERP Member which, after giving effect to such transfer, 
results in such ERP Member holding less than 25% of the aggregate 
number of shares of common stock of the LLC Member issued or issuable 
pursuant to the Units acquired pursuant to the ERP Agreement 
collectively.
    The Exchange believes these changes regarding Terms of Office are 
reasonably designed to account for the removal of Directors or 
Observers of non-performing ERP Members and Members that no longer have 
a controlling interest in the shares that provided them the right to 
such appointments.
Article II, Section 2.4, Nomination and Election
    The Exchange proposes to amend Article II, Section 2.4(a) to 
provide that the Nominating Committee shall nominate to ERP Director 
positions only those persons whose names have been approved and 
submitted by the applicable ERP Members having the right to nominate 
such person. As mentioned above, the LLC Member is then obligated to 
vote for the nominated ERP Director. The nominee shall be appointed at 
the first annual meeting of the Company following September 11, 2020, 
which was the closing date of the ERP established by the Exchange.\8\
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    \8\ See ERP Notice, supra note 3.
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Article II, Section 2.8, Vacancies
    The Exchange proposes to adopt paragraph (c) under Article II, 
Section 2.8 to provide that if an ERP Director position becomes vacant 
that the applicable ERP Member will retain the ability to nominate a 
person to fill the vacant ERP Director position. To eliminate any 
potential confusion between the treatment of true vacancies and the 
non-performance provisions in proposed Article II, Section 2.3(c), the 
Exchange proposes to specify that proposed Article II, Section 2.8(c) 
will not apply for a vacancy resulting from an ERP Director position 
becoming vacant due to a non-performing ERP Member. In the situation of 
non-performance of an ERP Member, the provisions of proposed Article 
II, Section 2.3(c) would apply.
Article II, Section 2.9, Removal and Resignation
    The Exchange proposes to amend Article II, Section 2.9 to provide 
that ERP Directors may only be removed for cause, which shall include, 
without limitation, such Director being subject to a statutory 
disqualification.
Article X, Sections 10.3 and 10.4
    The Exchange proposes to amend Article X, Section 10.3 to provide 
that Observers will be subject to the same participation rights on the 
Board during meetings pertaining to the self-regulatory function of the 
Company as other members of the Board. In addition, Article X, Section 
10.4 would be

[[Page 79255]]

amended to provide that Observers will be subject to the same 
requirements to maintain the confidentiality of all books and records 
of the Company reflecting confidential information pertaining to the 
self-regulatory function of the Company.
Miscellaneous Non-Substantive Changes
    In addition to the changes set forth above, the Exchange proposes 
to make the following non-substantive changes to the current By-Laws. 
The Exchange proposes to delete dated references to time periods and 
events that have expired since the proposal of the new By-Laws. 
Specifically, the Exchange proposes to delete provisions in Article II, 
Section 2.5, and Article III, Section 3.1(b), regarding Interim 
Directors and Interim Member Representative Directors since these 
appointments have already occurred. Consistent with this change, the 
Exchange proposes to remove references to Article II, Section 2.5 and 
Interim Directors and Interim Member Representative Directors from 
current Article I(x) (proposed to be renumbered as Article I(aa)) and 
Article II, Section 2.2(b)(i).
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \9\ in general, and furthers the 
objectives of Sections 6(b)(1) and 6(b)(5) of the Act \10\ in 
particular, in that it enables the Exchange to be so organized as to 
have the capacity to carry out the purposes of the Act and to comply, 
and to enforce compliance by its Members and persons associated with 
its Members, with the provisions of the Act, the rules and regulations 
thereunder, and the rules of the Exchange; and 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 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. In addition, the proposed 
change is consistent with Section 6(b)(3) of the Act,\11\ in that it 
enables the Exchange to assure a fair representation of its members in 
the selection of its directors and administration of its affairs and 
provide that one or more directors shall be representative of issuers 
and investors and not be associated with a member of the exchange, 
broker, or dealer.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78f(b)(3).
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    Specifically, the proposed amendments to the By-Laws are reasonably 
designed to incorporate provisions related to the ERP in a manner that 
ensures that the Exchange will remain so organized as to have the 
capacity to carry out the purposes of the Act and to comply, and to 
enforce compliance by its Members and persons associated with its 
Members, with the provisions of the Act, the rules and regulations 
thereunder, and the rules of the Exchange. The changes will also help 
to ensure that Directors, ERP Directors, Observers, and committee 
members are qualified and held to the same restrictions against 
statutory disqualification. The proposed ERP Directors will be subject 
to the same restrictions as current Directors including evaluating 
proposals with the Company's self-regulatory status in mind, 
restricting participation in activities where there is a conflict of 
interest, and requirement to maintain the confidentiality of 
information related to the Company's self-regulatory function. The 
proposed Observers will be subject to the same restrictions as current 
Directors regarding maintaining the confidentiality of information 
related to the Company's self-regulatory function. However, Observers 
will not be subject to the same restrictions as current Directors 
regarding evaluating proposals with the Company's self-regulatory 
status in mind and restricting participation in activities where there 
is a conflict of interest. The Exchange believes that treating 
Observers differently than Directors in these circumstances is 
reasonable because Observers will not be affirmatively voting on any 
such proposals in their non-voting observer capacity.
    In addition, the Exchange's proposed amendments address other non-
substantive revisions to reflect changes since the Commission granted 
the Exchange's registration as a national securities exchange.
    The proposal will continue to assure a fair representation of its 
Members in that ERP Directors will not affect the current Member 
Representation Director calculation or process in any way. The Exchange 
notes that no substantive changes are being proposed to the Board's 
composition; the Board size will increase, but the current composition 
will remain.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed changes to the 
Exchange By-Laws are designed to enable the Exchange to be so organized 
as to have the capacity to carry out the purposes of the Act and to 
comply, and to enforce compliance by its Members and persons associated 
with its Members, with the provisions of the Act, the rules and 
regulations thereunder, and the rules of the Exchange. As such, this is 
not a competitive filing and thus should not impose any burden on 
competition.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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-2020-30 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-2020-30. 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

[[Page 79256]]

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-2020-30, and should be submitted 
on or before December 30, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26995 Filed 12-8-20; 8:45 am]
BILLING CODE 8011-01-P