Document ID: SEC-2020-0373-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: MIAX PEARL, LLC
Posted Date: 2020-03-16T04:00Z

[Federal Register Volume 85, Number 51 (Monday, March 16, 2020)]
[Notices]
[Pages 14990-14993]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05238]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88352; File No. SR-PEARL-2020-04]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Chapter 
XVII, Consolidated Audit Trail Compliance Rule

March 10, 2020.
    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 27, 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 Chapter XVII, 
Consolidated Audit Trail Compliance Rule (``Compliance Rule'') 
regarding the National Market System Plan Governing the Consolidated 
Audit Trail (the ``CAT NMS Plan'' or ``Plan'') \3\ to be consistent 
with an exemption from the CAT NMS

[[Page 14991]]

Plan regarding Options Market Makers' reporting obligations.
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    \3\ Securities Exchange Act Release No. 67457 (July 18, 2012), 
77 FR 45722 (August 1, 2012) (``Adopting Release''). Unless 
otherwise specified, capitalized terms used in this rule filing are 
defined as set forth in the Compliance Rule.
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    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
PEARL's principal office, and at the Commission's Public Reference 
Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

Purpose
    Rule 613(c)(7) sets forth data recording and reporting requirements 
for the CAT NMS Plan. Specifically, Rule 613(c)(7), in relevant part, 
requires every member of a national securities exchange or national 
securities association to record and electronically report to the 
Central Repository details for each order and each Reportable Event. 
Options Market Maker quotes are included within the meaning of an 
``order'' under Rule 613(j)(8), which defines an ``order'' to include 
``any bid or offer.'' As a result, Rule 613(c)(7) states that the CAT 
NMS Plan must require every market maker on an options exchange to 
record and report all quotes and related Reportable Events to the 
Central Repository. Rule 613(c)(7) also requires the options exchanges 
to record and report the details of Options Market Maker quotes 
received by the options exchanges to the Central Repository. Given that 
the options exchanges and the Options Market Makers will be submitting 
virtually identical details concerning the Options Market Maker quotes 
to the Central Repository, the dual reporting of this information will 
at least double the size of the options quotation data reported to the 
CAT, which will create extensive overlap in the data elements reported.
    To address the issue of double reporting of quote data, the 
Participants filed with the Commission a request for exemptive relief 
from certain provisions Rule 613(c)(7) such that the CAT NMS Plan could 
be amended so that only options exchanges would record and report 
details for each Options Market Maker quote and related Reportable 
Event to the Central Repository, while Options Market Makers would be 
relieved of their obligation to record and report their quotes and 
related Reportable Events to the Central Repository.\4\ As a condition 
to this exemption, each Industry Member that is an Options Market Maker 
shall report to the Exchange the time at which its quote in a Listed 
Option is sent to the Exchange (and, if applicable, any subsequent 
quote modification time and/or cancellation time when such modification 
or cancellation is originated by the Options Market Maker).
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    \4\ Letter from Participants to Brent J. Fields, Secretary, 
Commission, Request for Exemptive Relief from Certain Provisions of 
SEC Rule 613 of Regulation NMS under the Securities Exchange Act of 
1934 (January 31, 2015), available at https://www.catnmsplan.com/wp-content/uploads/2017/03/p602383.pdf. See also Letter from 
Participants to Brent J. Fields, Commission, Supplement to Request 
for Exemptive Relief from Certain Provisions of SEC Rule 613 of 
Regulation NMS under the Securities Exchange Act of 1934 (April 3, 
2015), available at https://www.catnmsplan.com/wp-content/uploads/2017/03/exemptivesupplement1-allocationsreports.pdf.
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    MIAX PEARL's Compliance Rule incorporates by reference Chapter XVII 
of the rules if its affiliate, Miami International Securities Exchange, 
LLC (``MIAX''), which is MIAX's Consolidated Audit Trail Compliance 
Rule.\5\ Consistent with the above exemptive request, MIAX Rule 
1703(a)(3) states that ``[e]ach Industry Member that is an Options 
Market Maker is not required to report to the Central Repository the 
Industry Member Data regarding the routing, modification or 
cancellation of its quotes in Listed Options.'' MIAX Rule 1703(a)(3) 
further provides that ``[e]ach Industry Member that is an Options 
Market Maker shall report to the Exchange the time at which its quote 
in a Listed Option is sent to the Exchange (and, if applicable, any 
subsequent quote modification time and/or cancellation time when such 
modification or cancellation is originated by the Options Market 
Maker).''
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    \5\ See Securities Exchange Act Release No. 80256 (March 15, 
2017), 82 FR 14526 (March 21, 2017) (SR-PEARL-2017-04) (Order 
Approving Proposed Rule Changes To Adopt Consolidated Audit Trail 
Compliance Rules).
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    MIAX Rule 1703(a)(3) relieves Options Market Makers from reporting 
Industry Member Data to the Central Repository for quotes only and does 
not apply to orders. While MIAX Rule 1703(a)(3) applies to MIAX PEARL 
by virtue of being incorporated by reference, it does not relieve 
Options Market Makers from reporting Industry Member Data to the 
Central Repository because on MIAX PEARL, Options Market Makers submit 
orders and not quotes for display on the MIAX PEARL Book. On MIAX 
PEARL, orders submitted by Options Market Makers function like quotes 
on other options exchanges, including MIAX. Like quotes on MIAX, order 
submitted by Options Market Makers with a time-in-force of Day or GTC 
that are not executed upon entry are posted to the MIAX PEARL Book.
    To implement the above exemption and avoid duplicative reporting, 
MIAX PEARL proposes to amend its own compliance rule to state that 
orders submitted by Options Market Makers that are posted to the MIAX 
PEARL Book are considered quotes for purposes of the above exemption. 
Specifically, the Compliance Rule would state that ``[f]or purposes of 
MIAX Rule 1703(a)(3), orders that are posted to the MIAX PEARL Book are 
considered quotes when submitted by an Options Market Maker in an 
assigned symbol on MIAX PEARL.''
    The Exchange offers three time-in-force modifiers that Options 
Market Makers may attach to their orders: Day, Immediate-Or-Cancel 
(``IOC''), and Good-Till Cancel (``GTC'') and two interfaces of order 
entry, FIX and the MIAX Express Order interface (``MEO'').\6\ An 
Options Market Maker must include a time-in-force of Day or GTC on its 
order for it to be posted on the MIAX PEARL Book and to meet its 
continuous quoting obligations under Exchange Rule 605(d).\7\ The 
Exchange does not propose to exempt orders submitted by an Options 
Market Maker with a time-in-force of IOC because those orders do not 
post to the PEARL Book and, therefore, do not count towards its 
continuous quoting obligations.\8\ For the above reasons, the Exchange 
believes it is appropriate to only include Options Market Maker

[[Page 14992]]

orders that are posted to the MIAX PEARL Book under this exemption 
because they function like quotes as they post on the MIAX PEARL Book 
and count towards an Options Market Maker's continuous quoting 
obligations.
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    \6\ See Exchange Rule 516, Order Types. Not all order types and 
modifiers are available for use on each of the MEO Interface and the 
FIX Interface.
    \7\ Only the time-in-force modifiers of IOC and Day are 
available on the MEO interface. See id. (noting that ``[n]ot all 
order types and modifiers are available for use on each of the MEO 
Interface and the FIX Interface). See also Section 4.1.1.2 of the 
MEO Interface Specification, available at https://www.miaxoptions.com/sites/default/files/page-files/MIAX_Express_Orders_MEO_v2.0.pdf (indicating that the time--in-force 
instructions of IOC and Day are available on the MEO interface).
    \8\ See Interpretation and Policies .01 to Exchange Rule 605 
(stating that IOC orders from Market Makers will not be counted for 
the continuous quoting obligations set forth in paragraph (d) of 
this Rule 605).
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    Absent this proposed rule change, orders submitted to the Exchange 
would not be eligible for the exemption afforded to quotes as Options 
Market Makers would be required to report the details of their order 
and each Reportable Event to the Central Repository. This would result 
in the same duplicative reporting that the exemption prevents for 
quotes to occur for orders because both Options Market Makers and MIAX 
PEARL would submit virtually identical data to the Central Repository. 
As a result of this filing, double reporting would be avoided as only 
the Exchange will report all orders and Reportable Events to the 
Central Repository, as described above and required by the CAT NMS 
Plan. Options Market Makers on MIAX PEARL would be required to report 
to the Exchange the time at which its order in a Listed Option is sent 
to the Exchange and, if applicable, any subsequent order modification 
time and/or cancellation time when such modification or cancellation is 
originated by the Options Market Maker.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b)(5) of the Act,\9\ which requires, 
among other things, that the Exchange rules must be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and, in general, to protect investors 
and the public interest, and Section 6(b)(8) of the Act,\10\ which 
requires that the Exchange rules not impose any burden on competition 
that is not necessary or appropriate.
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    \9\ 15 U.S.C. 78f(b)(6).
    \10\ 15 U.S.C. 78f(b)(8).
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    The exemption for quotes described above would avoid the submission 
to the Central Repository by exchange and Options Market Makers of 
virtually identical details concerning the Options Market Maker quotes 
to the Central Repository. This proposed rule change seeks to serve the 
same purpose regarding orders submitted by Options Market Makers on 
MIAX PEARL, dual reporting of information that will at least double the 
size of the options quotation data reported to the CAT and create 
extensive overlap in the data elements reported. As described above, on 
MIAX PEARL orders posted to the MIAX PEARL Book operate in an identical 
manner as quotes on other options exchanges.
    The Exchange believes it is appropriate to limit the proposal to 
orders posted to the MIAX PEARL Book because those orders satisfy the 
Options Market Maker's two-sided quoting obligation. IOC orders would 
not be covered by the exemption because such orders do not post to the 
MIAX PEARL Book and do not count towards the Options Market Maker 
satisfying its two-sided quoting obligation.\11\ The Exchange believes 
that this proposal is consistent with the Act because it would avoid 
the same dual reporting that was the subject of the exemption for 
orders and is currently covered by MIAX Rule 1703(a)(3). The proposal 
is consistent with this exemption from the CAT NMS Plan and is designed 
to assist the Exchange and its Industry Members in meeting regulatory 
obligations pursuant to the Plan.
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    \11\ See supra note 8.
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    In approving the Plan, the SEC noted that the Plan ``is necessary 
and appropriate in the public interest, for the protection of investors 
and the maintenance of fair and orderly markets, to remove impediments 
to, and perfect the mechanism of a national market system, or is 
otherwise in furtherance of the purposes of the Act.'' \12\ As it will 
do for the quotes under the exemption, the Exchange will report all 
orders posted to the MIAX PEARL Book and Reportable Events to the 
Central Repository as required by the CAT NMS Plan. Options Market 
Makers on MIAX PEARL would be required to report to the Exchange the 
time at which its order in a Listed Option is sent to the Exchange and, 
if applicable, any subsequent order modification time and/or 
cancellation time when such modification or cancellation is originated 
by the Options Market Maker. Therefore, the Exchange believes that this 
proposal furthers the objectives of the Plan, as identified by the SEC, 
and is therefore consistent with the Act.
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    \12\ Adopting Release, supra note 3 at 84697.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
notes that the proposed rule changes are consistent with the exemption 
from the CAT NMS Plan to avoid duplicative reporting for quotes and is 
designed to assist the Exchange and its Options Market Makers in 
meeting their regulatory obligations pursuant to the Plan. The Exchange 
also notes that this amendment to the Compliance Rule will apply 
equally to all Industry Members that are Options Market Makers. In 
addition, all options exchanges that accept orders and not quotes from 
their market makers are proposing similar amendments to their 
Compliance Rules. Therefore, this is not a competitive rule filing and 
does not impose a 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

    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 \13\ and Rule 19b-4(f)(6) \14\ 
thereunder.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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

[[Page 14993]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR- PEARL-2020-04 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-2020-04. 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-2020-04 and should be submitted on 
or before April 6, 2020.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05238 Filed 3-13-20; 8:45 am]
BILLING CODE 8011-01-P