Document ID: SEC-2017-2153-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2017-12-26T05:00Z

[Federal Register Volume 82, Number 246 (Tuesday, December 26, 2017)]
[Notices]
[Pages 61067-61070]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27689]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82349; File No. SR-PEARL-2017-38]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Adopt a New 
Type of MIAX Express Orders Interface Port Known as a MEO Purge Port 
and To Amend MIAX PEARL Rule 519C, Mass Cancellation of Trading 
Interest, To Adopt a New Purge Message, as Well as To Amend Its Fee 
Schedule To Identify the New MEO Purge Port

December 19, 2017.
    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 December 15, 2017, MIAX PEARL, LLC (``MIAX 
PEARL'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change as described in 
Items 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.
---------------------------------------------------------------------------

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

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

    The Exchange is filing a proposal to amend Rule 519C, Mass 
Cancellation of Trading Interest, to adopt new rule text to reflect the 
proposed MEO Purge Port functionality, as well as to make clarifying 
changes to existing rule text to more accurately describe current 
functionality. The Exchange is also proposing to amend its Fee Schedule 
to identify the New MEO Purge Ports.
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to offer Members \3\ that connect to the 
Exchange using the MIAX Express Orders interface (``MEO Interface'') 
\4\ a new type of connection port, named MEO Purge Port, to be used as 
a dedicated port for sending purge messages to the Exchange. The 
Exchange also proposes to amend its Fee Schedule to identify the new 
MEO Purge Port. Finally, the Exchange proposes to amend Exchange Rule 
519C, Mass Cancellation of Trading Interest, to adopt new rule text to 
reflect the proposed MEO Purge Port functionality, as well as to make 
clarifying changes to existing rule text to

[[Page 61068]]

more accurately describe current functionality.
---------------------------------------------------------------------------

    \3\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of the 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 ``MEO Interface'' means a binary order interface 
used for submitting certain order types (as set forth in Rule 516) 
to the MIAX PEARL System. See Exchange Rule 100.
---------------------------------------------------------------------------

    Members connect to the Exchange's System \5\ via their assigned MEO 
ports. Currently, the Exchange offers Members three different types of 
MEO port connections. The first is a Full Service MEO Port--Bulk \6\ 
which supports all MEO input message types and binary bulk order entry; 
the second is a Full Service MEO Port--Single \7\ which supports all 
MEO input messages and binary order entry on a single order-by-order 
basis, but not bulk orders; the third is a Limited Service MEO Port \8\ 
which supports all MEO input message types, but does not support bulk 
order entry and only supports limited order types, as specified by the 
Exchange via Regulatory Circular. The Exchange limits Members to two 
(2) Full Service MEO Ports of either type per Matching Engine \9\ and 
allows up to eight (8) Limited Service MEO Ports per Matching 
Engine.\10\
---------------------------------------------------------------------------

    \5\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
    \6\ See MIAX PEARL Fee Schedule, Definitions.
    \7\ See MIAX PEARL Fee Schedule, Definitions.
    \8\ See MIAX PEARL Fee Schedule, Definitions.
    \9\ ``Matching Engine'' is a part of the MIAX PEARL electronic 
system that processes options orders and trades on a symbol-by-
symbol basis. Some Matching Engines will process option classes with 
multiple root symbols, and other Matching Engines may be dedicated 
to one single option root symbol (for example, options on SPY may be 
processed by one single Matching Engine that is dedicated only to 
SPY). A particular root symbol may only be assigned to a single 
designated Matching Engine. A particular root symbol may not be 
assigned to multiple Matching Engines. See MIAX PEARL Fee Schedule, 
Definitions.
    \10\ See MIAX PEARL Fee Schedule, Section 5(d).
---------------------------------------------------------------------------

    The proposed MEO Purge Ports are a new, optional type of MEO port 
dedicated solely to handling purge messages which would enable a 
Member, by MPID,\11\ to (i) remove all or a subset of its quotations 
\12\ in the System and (ii) block all or a subset of new inbound 
quotations from being received; \13\ or cancel all of its MEO Day 
orders \14\ in the System and block all new inbound MEO Day orders from 
being received by MPID.\15\ Sending a purge message to cancel and block 
MEO Day orders will not cancel or block MEO immediate-or-cancel 
(``IOC'') orders.\16\ MEO IOC orders allow Members to continue to 
provide targeted liquidity to the market and to interact with Public 
Customer \17\ orders. When quotes have been purged as described above, 
the block will remain in effect until the Member requests that the 
Exchange remove the block.
---------------------------------------------------------------------------

    \11\ The term ``MPID'' means unique market participant 
identifier. See Exchange Rule 100.
    \12\ 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 for purposes of MIAX 
PEARL Rules. See Exchange Rule 100.
    \13\ A Member currently has the ability to send a purge message 
to remove all or a subset of its quotations and block all or a 
subset of its new inbound quotations via its MEO port or by request 
to the Exchange's Help Desk. That ability is not changing with this 
proposal. What is changing with this proposal is the ability of a 
Member to send that purge message via the proposed MEO Purge Ports.
    \14\ This would include both Day Limit Orders and Post-Only 
Orders entered via the MEO interface. A Day Limit Order is an order 
to buy or sell which, if not executed, expires at the end of the 
trading in the security on the day on which it was entered. See 
Exchange Rule 516(h). Post-Only Orders are orders that will not 
remove liquidity from the Book. See Exchange Rule 516(j).
    \15\ The Exchange is introducing a new purge message that will 
cancel all of a Member's MEO Day orders and block all of its new 
inbound MEO Day orders. This request may only be sent electronically 
via a Member's existing MEO port, or via the new proposed MEO Purge 
Ports.
    \16\ An immediate-or-cancel order is an order that is to be 
executed in whole or in part upon receipt. Any portion not so 
executed is canceled. See Exchange Rule 516(e).
    \17\ The term ``Public Customer'' means a person that is not a 
broker or dealer in securities. See Exchange Rule 100.
---------------------------------------------------------------------------

    The purge messages described above may be sent via any type of MEO 
port, however, purge messages received on the proposed MEO Purge Ports 
will be handled by the System in a way that ensures minimum possible 
latency (as MEO Purge Ports solely process purge messages, as opposed 
to Full Service MEO Ports--Bulk, Full Service MEO Ports--Single, and 
Limited Service MEO Ports, which also process additional message 
types), thereby providing Members with a faster, more efficient means 
to have their quotes removed from the System, which will provide 
Members with an enhanced level of risk protection.
    The proposed MEO Purge Ports are designed to assist Members in the 
management of, and risk control over, their orders, particularly if the 
Member has resting orders in a large number of options. For example, if 
a Member detects market indications that may influence the direction or 
bias of its orders, the Member may use the proposed MEO Purge Ports to 
reduce uncertainty and to manage risk by purging all orders in a number 
of options seamlessly to avoid unintended executions, while continuing 
to evaluate the direction of the market.
    The Exchange also proposes to amend Section 5(d) of its Fee 
Schedule to identify the new MEO Purge Ports. Members are allocated two 
(2) Full Service MEO Ports of either type and up to eight (8) Limited 
Service MEO Ports per Matching Engine to which they connect.\18\ The 
Exchange currently waives monthly MEO Port fees for all Members and 
will similarly waive MEO Purge Port fees until such time as the 
Exchange submits a rule filing to the Commission \19\ to establish the 
fee amount, and any related requirements, and provides notice to expire 
the applicable Waiver Period.\20\
---------------------------------------------------------------------------

    \18\ See MIAX PEARL Fee Schedule, Section 5(d).
    \19\ The term ``SEC'' or ``Commission'' means the United States 
Securities and Exchange Commission. See Exchange Rule 100.
    \20\ ``Waiver Period'' means, for each applicable fee, the 
period of time from the initial effective date of the MIAX PEARL Fee 
Schedule until such time that the Exchange has an effective fee 
filing establishing the applicable fee. The Exchange will issue a 
Regulatory Circular announcing the establishment of an applicable 
fee that was subject to a Waiver Period at least fifteen (15) days 
prior to the termination of the Waiver Period and effective date of 
any such applicable fee.
---------------------------------------------------------------------------

    With the introduction of MEO Purge Ports, the Exchange proposes to 
amend Section 5(d) of its Fee Schedule to provide that a Member may 
request and be allocated two (2) MEO Purge Ports per Matching Engine to 
which it connects via a Full Service MEO Port. Specifically, a Member 
must have either a Full Service MEO Port--Bulk, or a Full Service MEO 
Port--Single connection to a Matching Engine in order to be eligible to 
receive MEO Purge Ports with respect to that Matching Engine.
    The Exchange also proposes to amend Exchange Rule 519C, Mass 
Cancellation of Trading Interest, to adopt new rule text for new 
functionality being introduced in this proposal which provides that a 
Member may cancel all of its MEO Day orders and block all new inbound 
MEO Day orders by MPID. This request may only be submitted to the 
Exchange's System electronically via the Member's MEO port; either via 
its existing MEO ports, or via the new proposed MEO Purge Ports.
    The Exchange also proposes to amend Exchange Rule 519C, Mass 
Cancellation of Trading Interest, to clarify functionality, in light of 
the new proposed functionality. Specifically, the Exchange proposes to 
amend 519C(b) which reads, ``[a] Member may request Exchange staff to 
(i) remove all of its quotations and cancel all of its orders in the 
System and (ii) block all new inbound quotations and orders, by firm 
name or by MPID.'' Accordingly, the Exchange is proposing to delete the 
reference to staff in the first sentence as a Member may either contact 
Exchange staff to have this action performed on their behalf or, by 
utilizing the new

[[Page 61069]]

purge message, may submit a request to the Exchange's System via its 
MEO Port to cancel all of its MEO Day orders and block all new inbound 
MEO Day orders by MPID. Additionally, the Exchange proposes to amend 
the last sentence of 519C(b) which currently states that, ``[t]he block 
will remain in effect until the Member requests Exchange staff to 
remove the block,'' by removing the word ``staff.'' To remove a block a 
Member may (i) send an electronic message directly into the Exchange's 
System; or (ii) contact Exchange staff. The Exchange believes removing 
the word ``staff'' from the rule text more accurately encompasses the 
activity under both scenarios.
    The Exchange notes that this proposal does not preclude Members 
from using the existing purge messages provided by either the MEO 
protocol or the cancel messages provided by the FIX protocol. Under the 
MEO protocol, Members may request that all quotations for all 
underlyings, or for a specific underlying, be removed, and that new 
inbound quotations for all underlyings, or specific underlyings, be 
blocked. Under the FIX protocol, Members may also request that all, or 
a subset, of orders for an MPID, or all Day or GTC orders for an MPID, 
on the requesting session, be canceled.
    Additionally, the Exchange notes that this functionality is similar 
to functionality recently adopted by the Exchange's affiliate, Miami 
International Securities Exchange, LLC (``MIAX Options'').\21\
---------------------------------------------------------------------------

    \21\ See Securities Exchange Act Release No. 81252 (July 28, 
2017), 82 FR 36172 (August 3, 2017) (SR-MIAX-2017-36).
---------------------------------------------------------------------------

    The Exchange will announce the implementation date of the proposed 
rule change by Regulatory Circular to be published no later than 60 
days following the operative date of the proposed rule. The 
implementation date will be no later than 60 days following the 
issuance of the Regulatory Circular.
2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \22\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \23\ 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.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act,\24\ in that it promotes just and 
equitable principles of trade and removes impediments to and perfects 
the mechanism of a free and open market. Offering Members designated 
MEO Purge Ports would enhance their ability to manage quotes, quote 
traffic, and quoting obligations for Members that are Market 
Makers,\25\ which would, in turn, improve their risk controls to the 
benefit of all market participants. The Exchange believes that MEO 
Purge Ports would foster cooperation and coordination with persons 
engaged in facilitating transactions in securities because designating 
MEO Purge Ports for purges only may encourage better use of dedicated 
ports. This may, concurrent with the ports that carry quotes and other 
information necessary for market making activities, enable more 
efficient, as well as fair and reasonable, use of Members' resources. 
As MEO Purge Ports are only available for purging and not for 
activities such as order or quote entry, the MEO Purge Ports are not 
designed to permit unfair discrimination but rather are designed to 
enable Members to better manage their market risk, which, in turn, 
benefits all market participants. The Exchange also notes that similar 
connectivity and functionality is offered by other exchanges.\26\
---------------------------------------------------------------------------

    \24\ Id.
    \25\ See Exchange Rule 604 and 605(d)(1).
    \26\ See Securities Exchange Act Release Nos. 81252 (July 28, 
2017), 82 FR 36172 (August 3, 2017) (SR-MIAX-2017-36); 77613 (April 
13, 2016), 81 FR 23023 (April 19, 2016) (SR-Phlx-2016-45); 79956 
(February 3, 2017), 82 FR 10102 (February 9, 2017) (SR-BatsBZX-2017-
05); and 81095 (July 7, 2017), 82 FR 32409 (July 13, 2017) (SR-ISE-
2017-62).
---------------------------------------------------------------------------

    The Exchange notes that the proposed rule change will not relieve 
Market Makers of their continuous quoting obligations under Exchange 
Rule 604 and under Regulation NMS Rule 602.\27\ Specifically, any 
interest that is executable against a Market Maker's quotes that is 
received by the Exchange's Matching Engine prior to the time that the 
purge message is received by the Exchange's Matching Engine will 
automatically execute at that price, up to the quote's size. Market 
Makers that purge their quotes will not be relieved of the obligation 
to provide continuous two-sided quotes on a daily basis, nor will it 
prohibit the Exchange from taking disciplinary action against a Market 
Maker for failing to meet its continuous quoting obligation each 
trading day.
---------------------------------------------------------------------------

    \27\ 17 CFR 242.602.
---------------------------------------------------------------------------

    In addition, the Exchange believes that the proposal removes 
impediments to and perfects the mechanisms of a free and open market 
and a national market system and, in general, protects investors and 
the public interest by providing Members with an additional purge 
message which allows them to cancel their MEO Day orders by MPID and 
blocks new inbound MEO Day orders from being received yet preserves 
their ability to continue to provide liquidity to the market and 
interact with Public Customer orders via MEO IOC orders. Further, the 
Exchange is clarifying existing rule text in Rule 519C to better 
describe current functionality available on the Exchange. The Exchange 
believes that clarifying current functionality promotes the protection 
of investors and the public interest by helping market participants 
better understand the risk protection tools available on the Exchange.
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(4) of the Act,\28\ in that it provides for the 
equitable allocation of reasonable dues, fees and other charges among 
Members and other persons using any facility or system which the 
Exchange operates or controls. Even though the Exchange is proposing to 
waive this particular fee during the Waiver Period,\29\ the Exchange 
believes that it is appropriate to provide market participants with the 
overall structure of the fee by outlining the structure on the Fee 
Schedule without setting forth a specific fee amount, so that there is 
a general awareness that the Exchange intends to assess such a fee in 
the future.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78f(b)(4).
    \29\ See supra note 20.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed amendments to its fee 
schedule are non-discriminatory because they will apply uniformly to 
all Members. The proposed MEO Purge Ports are completely voluntary and 
no Member is required, or under any regulatory obligation, to utilize 
them. All Members have the option to select any connectivity option, 
and fees, when charged, are charged uniformly for the services offered 
by the Exchange.

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

[[Page 61070]]

of the purposes of the Act. The Exchange believes the proposed rule 
change will enhance competition because it will enable it to offer 
similar connectivity and functionality as its competitor exchanges.\30\ 
In addition, the proposed MEO Purge Ports are completely voluntary and 
no Member is required or under any regulatory obligation to utilize 
them.
---------------------------------------------------------------------------

    \30\ See supra note 26.
---------------------------------------------------------------------------

    The Exchange believes its proposed amendments to its Fee Schedule 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. On the contrary, 
the Exchange believes the proposed rule change will enhance competition 
because it will enable it to offer similar connectivity and 
functionality as its competitor exchanges.\31\ In addition, the 
proposed MEO Purge Ports are completely voluntary and no Member is 
required or under any regulatory obligation to utilize them. 
Accordingly, the Exchange does not believe that the proposed change 
will impair the ability of Members or competing venues to maintain 
their competitive standing in the financial markets.
---------------------------------------------------------------------------

    \31\ Id.
---------------------------------------------------------------------------

    The Exchange also does not believe the proposed rule change would 
impact intramarket competition as it would apply to all Members and 
non-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.

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 \32\ and Rule 19b-4(f)(6) \33\ 
thereunder.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 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.
---------------------------------------------------------------------------

    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-2017-38 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-2017-38. 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-2017-38 and should be submitted on 
or before January 16, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
---------------------------------------------------------------------------

    \34\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27689 Filed 12-22-17; 8:45 am]
 BILLING CODE 8011-01-P